Annual Report 2020 for the Period Ended December 31, Annual Report 2020 for the Period Ended December 31, 2020

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INPEX CORPORATION Annual Report 2020 For the period ended December 31, Annual Report 2020 For the period ended December 31, 2020

Akasaka Biz Tower 5-3-1 Akasaka, Minato-ku, Tokyo 107-6332, Japan Phone: +81-3-5572-0200 https://www.inpex.co.jp/english

This Report was printed using environmentally conscious methods and vegetable oil-based ink.

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Company Name INPEX CORPORATION General Meeting of Shareholders INPEX CORPORATION is Japan’s largest oil and Established April 3, 2006 Audit & Supervisory Board Board of Directors Nomination and Compensation natural gas E&P company. (members) Advisory Committee Audit & Supervisory INPEX Advisory Committee Capital ¥290,809,835,000 Board Members’ Office Executive Committee INPEX will proactively engage in energy structure reforms Company Akasaka Biz Tower, President & CEO Compliance Committee towards the realization of a net zero carbon society by 2050, while Headquarters 5-3-1 Akasaka, Minato- CSR Committee

responding to the growing energy demands of Japan and the world ku, Tokyo 107-6332, Corporate HSE Committee Japan and fulfilling the company’s responsibility for the development and Information Security Committee Number of 3,163 INPEX Value Assurance stable supply of energy over the long term. System Committee Employees (Consolidated) Our Mission Renewable Energy & Power Business Division Domestic Exploration & Production Division Abu Dhabi Projects Division Eurasia, Middle East & Africa Projects Division America Projects Division Oceania Projects Division Asia Projects Division New Ventures & Global Exploration Division Domestic Energy Supply & Marketing Division Global Energy Marketing Division Technical Division Logistics & IMT Division Finance & Accounting Division Corporate Strategy & Planning Division General Administration Division Hydrogen & CCUS Development office Strategic Projects office Legal Unit HSE Unit Audit Unit Main Business We are committed to contributing to the creation of a brighter Research, exploration, development, production and sales of oil, natural gas future for society through our efforts to develop, produce and and other mineral resources, other deliver energy in a sustainable way. related businesses and investment and lending to the companies engaged in these activities, etc. Our Goal

We aim to become a leading energy company serving an essential role in global society by meeting the energy needs of Japan and Stock Data countries around the world. Authorized Shares Total Number of Shareholders and Issued Shares 3,600,000,000 common stocks Common Stock 108,717/1,462,323,600 shares 1 Class A Stock Class A Stock* 1 shareholder (Minister of Economy, Trade and Industry) / 1 share *The Company’s Articles of Incorporation stipulate that certain major corporate decisions require a resolution by the holder of the Class A Stock in addition to the approval of the shareholders’ meetings or the Board of Directors. Major Shareholders (Common Stock) Shareholding by Shareholder Type

Percentage of Number of Percentage of Number of Number of Name total common Shareholder type common total common common shares shareholders shares* (%) shares shares¹ (%) Minister of Economy, Trade and Industry, Japan 276,922,800 18.96 Financial Institutions 76 346,280,288 23.68 Japan Petroleum Exploration Co., Ltd. 106,893,200 7.32 (Including Trust Accounts) The Master Trust Bank of Japan, Ltd. (Trust Account) 106,437,300 7.29 Securities Companies 64 92,497,267 6.33 Other Domestic Custody Bank of Japan (Trust Account) 59,699,100 4.09 741 208,681,980 14.27 Corporations ENEOS Holdings, Inc. 43,810,800 3.00 Minister of Economy, Custody Bank of Japan (Trust Account 7) 27,530,000 1.89 1 276,922,800 18.94 CONTENTS Trade and Industry2 JAPAN SECURITIES FINANCE CO., LTD. 24,209,700 1.66 Foreign Corporations 1,037 411,834,712 28.16 SMBC Nikko Securities Inc. 21,957,900 1.50 and Other 02 INPEX’s Vision and STATE STREET BANK WEST 17,373,143 1.19 Individuals and Other 106,797 124,140,053 8.49 CLIENT - TREATY 505234 Value Creation Treasury Shares 1 1,966,500 0.13 02 Our Vision THE BANK OF NEW YORK MELLON 140051 16,988,100 1.16 04 Value Creation Process 1. The percentages of total common shares are for the total number of *The shareholder ratio is calculated after subtracting treasury shares (1,966,500 shares). issued common shares. The shareholder ratio is rounded off to the The shareholder ratio is rounded off to the nearest whole number. nearest whole number. 06 Growth Strategy for 2. Excludes one Class A Stock Value Creation 06 Message from the Representative Directors 08 Message from the President & CEO 16 Financial and Operating Highlights IR CSR 18 Sustainability Highlights 20 Segment Overview https://www.inpex.co.jp/ https://www.inpex.co.jp/ Inquiries english/ir/ english/csr/ 22 INPEX’s Business For IR inquiries, as well as to offer comments 26 INPEX’s Strengths Sustainability Report and opinions about this report, please contact 30 Featured Content: https://www.inpex.co.jp/english/csr/csr/ below. Business Development Strategy - Towards a Net Zero Carbon Society by 2050 Corporate Strategy & Planning Division 34 Progress Against Medium-term Business Plan Corporate Communications Unit 2018–2022 Investor Relations Group Web site: www.inpex.co.jp/english/ir/inquiries.html

005_0219287912106.indd 4-6 2021/06/25 16:28:58 ABOUT OUR REPORTING In editing this Annual Report, we have referred to documents such as the International Inte- grated Reporting Council’s (IIRC) International Communication Tool Map Integrated Reporting Framework and the Guidance for Collaborative Value Creation issued by Japan’s Ministry of Economy, Trade Financial Information Non-financial Information and Industry (METI), incorporating information with the aim of straightforwardly conveying our business activities within the reporting period Annual Reports from both financial and non-financial perspectives. Securities Reports In fiscal 2020, we have steadily responded to dramatic changes in the external environment, such as the spread of COVID-19 and Publications Fact Books crude oil price declines. Going forward, we recognize that changes towards a net zero car- Sustainability Reports bon society will pose new challenges for us, but we consider these challenges to be great Corporate Brochures opportunities at the same time. By providing a stable supply of diverse energy both domestically and internationally with a focus on cleaner upstream businesses, we will continue to improve the enterprise value of the INPEX Group Online Corporate Website as a whole, while contributing to stable energy supply, environmental conservation, economic and social development and more. In this Annual Report, we have worked to more concretely present our vision, value cre- Securities Reports (available in Japanese only) ation process, strengths, initiatives towards a https://www.inpex.co.jp/ir/library/securities.html net zero carbon society, sustainability initiatives Fact Books https://www.inpex.co.jp/english/ir/library/factbook.html and other topics. Sustainability Reports https://www.inpex.co.jp/english/csr/csr/ This Annual Report is intended to function Corporate Brochures (available in Japanese only) as a communication tool contributing to dia- https://www.inpex.co.jp/company/pdf/brochure.pdf logue with our stakeholders. Corporate Website https://www.inpex.co.jp/english/ DISCLAIMER Information contained in this Annual Report is not an offer or a solicitation of an offer to buy or sell securities. You are requested to make investment decisions using your own judgment. Although the Company has made sufficient effort to ensure the accuracy of information provided herein, the Company assumes no responsibility for any damages or liabilities including, but not limited to, those due to incorrect information or any other reason.

FORWARD-LOOKING STATEMENTS This Annual Report includes forward-looking information that reflects the Company’s plans and expectations. Such forward-looking information is based on the current assumptions and beliefs of the Company in light of the information currently available to it, and involves known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors could cause the Company’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by such forward-looking information. Such risks and uncertainties include, without limitations, fluctuations in the CONTENTS following: the price of and demand for crude oil and natural gas; 36 The Basis of our exchange rates; and Value Creation the costs associated with exploration, 36 Sustainability development, production and other related 44 Directors, Audit & Supervisory Board Members expenses. and Executive Officers The Company undertakes no obligation to publicly update or revise any information in 46 Outside Director and Outside Audit & Supervisory this Annual Report (including forward-looking Board Member Roundtable Discussion information). 48 Corporate Governance NOTES REGARDING FIGURES 52 Performance and Financial figures in this Annual Report have been, in principle, rounded to the nearest unit Financial Overview (e.g., millions, billions) for convenience with an 52 Message from the Senior Vice President, exception of the figures on page 65 to page Finance & Accounting 109 where they have been, in principle, round- 54 11-Year Financial Information ed down. The “Project Overview by Region” 56 Project Overview by Region section (starting on page 56) describes, in prin- 66 Background Information: Oil and Gas ciple, the operating situation as of March 31, Accounting Policies and Practices 2021. Figures in parentheses denote negative 68 Management’s Discussion and Analysis of amounts. The natural gas production volume for projects in production is not the volume at Financial Condition and Results of Operations wellheads but corresponds to the gas volume 74 Consolidated Financial Statements / Notes sold to buyers. INPEX CORPORATION is listed 94 Independent Auditor’s Report on the First Section of the Tokyo Stock Ex- 96 Subsidiaries and Affiliates change under the securities code 1605. The 98 Business Risks Company is also included in the Nikkei Stock 107 Oil and Gas Reserves and Production Volume Average (Nikkei 225) and the JPX-Nikkei Index 110 Corporate Information 400 (JPX400).

010_0219287912106.indd 1 2021/06/28 16:53:38 INPEX’s Vision and Value Creation

Our Vision

We aim to become a leading energy company serving an essential role in global society by meeting the energy needs of Japan and countries around the world.

Energy Situation in Japan and Worldwide

Energy demand fell in the short term due to a dramatic warming to below 2°C compared to pre-industrial revo- and large-scale downturn in the global economy caused lution levels and preferably to 1.5°C. In addition, major by the spread of COVID-19 that surfaced in 2019. How- countries such as the EU nations, the U.K. and Japan ever, over the medium to long term, we anticipate a re- have announced so-called “net zero targets” to reduce covery and growth in energy demand due to factors greenhouse gas emissions to effectively zero in 2050. such as expanding global middle-class populations and The spread of COVID-19 has caused a stagnation in economic growth mainly in emerging countries. De- economic and social activities, leading to a decrease in mand for oil and natural gas is also expected to gradu- greenhouse gas emissions. This phenomenon has given ally return to pre-pandemic levels in step with the rise to policies simultaneously targeting economic re- recovery of the global economy. Over the medium to covery and climate change action, as well as those look- long term, we expect to see strong demand primarily in ing to build cleaner, less energy-consuming social Asia, driven by an increase in the global population and structures. We believe that progress in discussions to- economic growth. ward a net zero carbon society will increase the risk of Japan continues to face challenges in securing stable further limiting oil and natural gas demand and amplify energy supplies and increasing its independent devel- the urgency of taking action toward a net zero carbon opment ratio of oil and natural gas to achieve this. society. In addition, demand for renewable energy is ex- While the Japanese government’s independent devel- pected to grow significantly. opment ratio target for fiscal 2030 is 40% or more, the In order to contribute to the realization of the Paris actual ratio in fiscal 2019 was just under 35%. Although Agreement objectives in relation to climate change, IN- this ratio is steadily increasing, the situation requires PEX will steadily realize its climate change response sustained and long-term expansion measures, given the goals including a net zero carbon emission by our com- growth in global energy demand as well as geopolitical pany by 2050. risks. On the other hand, the Paris Agreement, adopted in 2015, sets out a global long-term goal to limit global 2017 Extension of the production sharing agreement for the ACG oil fields 2021 Japanese 2015 2018 corporate name 2012 Acquires interest in ADCO Ichthys LNG Project is changed to Ichthys LNG Project reaches onshore concession commences production Kabushiki Kaisha final investment decision INPEX 2016 2013 Kashagan Oil Field 2019 Naoetsu LNG Terminal is commences crude Revised development plan completed oil shipments for the Abadi LNG Project is approved 2014 2008 Extension of the concession agreement for the Upper Zakum Oil Field INPEX CORPORATION is founded Business Development Strategy - Towords a Net Zero Carbon Society by 2050 Vision 2040 Delivering Tomorrow’s Energy Solutions

Medium-term Business Plan Medium- to Long-term Vision of 2018–2022 INPEX Outlines specific targets and initiatives for the Ichthys and our growth over the next decade five-year period between fiscal 2018 and fiscal 2022 Clarifies key initiatives and targets for the period For more on progress of the See page leading up to the Ichthys production start-up Medium-term Business Plan 34

2008 2012 2018 2022

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010_0219287912106.indd 2 2021/06/28 16:53:42 INPEX’s Vision and Value Creation Business Development Strategy Towards a Net Zero Carbon Society by 2050 INPEX, under its new Japanese corporate name, will improve the enterprise value of the INPEX Group as a whole, while proactively responding to changes towards a net zero carbon society by providing a stable supply of diverse energy in a cleaner form both domestically and internationally, and thereby contributing to stable energy supply, environmental conservation, economic and social development and more.

Our Climate Change Response Goals Scope 1 + 2 Scope 1 + 2 Scope 3 2050 2030 Scope 3 REDUCTION

NET ZERO 30% OR MORE work together with all relevant Growth Strategies for Value Creation in absolute reduction of net stakeholders to address emissions carbon intensity challenges across the value chains

Stable Supply of Energy Five Business Pillars Towards a Net Zero Carbon Society

Reduce CO2 emissions from Early-stage Resistance upstream operations development to low oil CCS Enhance & production prices and emphasize renewable energy initiatives A more resilient & Becoming Develop a Pioneer a hydrogen cleaner upstream business of Energy business Transformation Promote Energy carbon recycling savings & and cultivate new The Basis of our Value Creation Gas shift business opportunities improved Promote forest efficiency conservation

*CCUS: Carbon dioxide Capture, Utilization and Storage Reinforcement of earning power Hydrogen business expansion Power from renewables + Hydrogen production utilizing surplus power

Active business expansion

Business

implementation Reinforcement of earning Performance and Financial Overview Renewable power as core business fields Business expansion, efficiency and Business low-cost realization establishment Reduction of CO2 from INPEX CCUS and assets hydrogen

Upstream fields

2050 INPEX CORPORATION Annual Report 2020 03

010_0219287912106.indd 3 2021/06/28 16:53:45 Value Creation Process

INPEX will proactively engage in energy structure reforms towards the realization of a net zero carbon society by 2050, while responding to the growing energy demands of Japan and the world and fulfilling the company’s responsibility for the development and stable supply of energy over the long term. By doing so, INPEX will contribute a brighter future for society and sustainably increase its enterprise value.

Global Developments COVID-19 pandemic, deteriorating global Increasing momentum toward addressing External economy climate change Dramatic fluctuation in oil and natural gas Policy to elevate Japan’s target independent Environment prices development ratio of oil and natural gas

Inputs Business Processes

Human Capital Global and diverse Investments for personnel exploration and Number of employees: development 3,163 (consolidated) Increasing reserves

Social and Relationship Upstream Oil and Capital Natural Gas Business Good relationships with Exploration, production and marketing of stakeholders in Japan and crude oil and natural gas around the world See page 22

Natural Capital Accounting of revenue Crude oil, natural gas, air, attributable Growth of water, land, natural energy to sales production volume Financial Capital Strong financial base Equity ratio: 59.0%, Five Business Pillars Towards Promote carbon D/E ratio: 45.1% Reduce CO2 a Net Zero Carbon Society emissions from recycling and cultivate Long-term credit ratings upstream operations by 2050 new business (as of June 23, 2021): (CCUS) opportunities Moody’s A2 (stable), See pages 25, 30-33 S&P A- (stable), R&I AA- (stable)

Develop a hydrogen Promote forest Manufactured Capital business conservation Production, manufacturing Enhance and emphasize and supply facilities in renewable energy initiatives Japan and around the world Medium-term Business Plan 2018–2022 See page 34 Intellectual Capital

Technical capabilities and Identification of experience to carry out CSR Management material issues See page 36 projects Corporate Governance See page 48 Note: Results for the fiscal year ended December 31, 2020

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Risks Opportunities

Risks of natural disasters, large-scale accidents, etc. Increasing importance of natural gas in energy transition Risk of failure in exploration, development or production Opportunities for a more resilient and cleaner upstream business Oil and natural gas price fluctuations and exchange/interest Various changes toward a net zero carbon society (e.g., increasing rate fluctuations demand for hydrogen, ammonia, CCUS and renewable energies) Climate change-related policy/regulatory, technical, market Opportunities to develop new businesses that respond to society’s new and physical risks needs Country risks Growth Strategies for Value Creation

Outputs Outcomes

Energy supply indispensable Economic Values to people’s livelihoods Generation of free cash flow Shareholder returns Products Improvement of enterprise value/ shareholder value Note: Results for the fiscal year ended December 31, 2020 Social Values The Basis of our Value Creation Stable supply of energy to society Oil Contribution to local communities and creation of employment opportunities thousand barrels Reduction of workplace injuries and prevention of major accidents per day 331 Increase in Japan’s independent development ratio of oil and natural gas

Environmental Values

Expanding supply of natural gas as Natural gas a cleaner source of energy Cleaner upstream operations through

million cubic feet hydrogen/CCUS businesses Performance and Financial Overview 1,265 per day Reduction of greenhouse gas emissions Conservation of biodiversity

Renewable energy Contribution to Achieving the SDGs* Power generated

MWh 371,998 *SDGs: Sustainable Development Goals

INPEX CORPORATION Annual Report 2020 05

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Message from the Representative Directors

Toshiaki Kitamura Representative Director and Chairman Takayuki Ueda Representative Director, President and CEO

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011_0219287912106.indd 6 2021/07/01 16:34:55 INPEX’s Vision and Value Creation

As an “all-new” INPEX, we will contribute to the realization of a net zero carbon society by being the driving force behind the stable

supply of diverse energy. Growth Strategies for Value Creation

In the fiscal year ended December 31, 2020, the worldwide economic stagnation caused by the spread of COVID-19 since February 2020 and the breakdown of the OPEC+ production cut agreement sent crude oil prices plummeting, resulting in a very severe performance by the Com- pany. However, we have worked to reduce investments and costs, secure sufficient liquidity and further strengthen our financial base, making ourselves more resistant to dramatic changes in the business environment. In addition to these dramatic changes, in recent years there have been major economic and social changes, highlighted by issues related to climate change and the transition to a low-carbon society. INPEX has developed as a company built around upstream businesses consisting of the exploration, development and production of crude oil and natural gas. It remains our important responsibility to meet the ever-growing demand for energy around the world and especially The Basis of our Value Creation in Asia. On the other hand, however, we believe that it is necessary to adapt to this new era and actively promote efforts to prepare for a transformation in the energy sector. In light of these changes in our business environment and the progress in energy transformation initiatives, on January 27, 2021, we announced our Business Development Strategy - Towards a Net Zero Carbon Society by 2050, which outlines our climate change goals and our business strategy for achieving a net zero carbon society in the interest of advancing new businesses and management leveraging our strengths. Going forward, we will actively engage in new business fields such as CCUS and hydrogen, while building on the foundations of our upstream businesses in crude oil and natural gas, so that our business activities are sustainable and aligned to environmental and social expectations and requirements. In order to promote the business development

strategy as a unified group, our Japanese corporate name was changed from Kokusai Sekiyu Performance and Financial Overview Kaihatsu Teiseki Kabushiki Kaisha to Kabushiki Kaisha INPEX on April 1, 2021. Under this new Japanese corporate name, we will strive to improve the enterprise value of the INPEX Group as a whole, contributing to environmental conservation, economic and social development and more by providing a stable supply of diverse energy both domestically and internationally and in a cleaner form. We aim to be a pioneer in energy transformation that proactively responds to change towards a net zero carbon society. At the same time, at our global oil and gas production sites, which form our core business, we will strive to ensure a stable supply of energy by continuing production in a safe and stable manner, while taking a variety of measures to prevent the further spread of COVID-19. We would like to take this opportunity to ask for the continued and unwavering support and understanding of all our stakeholders.

Representative Director Representative Director, and Chairman President and CEO

INPEX CORPORATION Annual Report 2020 07

011_0219287912106.indd 7 2021/07/01 16:34:56 Message from the President & CEO

Takayuki Ueda Representative Director, President and CEO

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The “all-new” INPEX Group will work as one to drive energy transformation.

Movements toward a net zero carbon society by 2050 are intensifying across government and industrial sectors. In light of the changes in our business environment and progress in energy transformation initiatives, we Growth Strategies for Value Creation will actively engage in energy structure reforms to promote new businesses and new management leveraging our strengths, while continuing to fulfill our responsibility of providing a stable supply of energy. In January 2021, we announced our Business Development Strategy - Towards a Net Zero Carbon Society by 2050, and on April 1, 2021, our Japanese corporate name was changed from Kokusai Sekiyu Kaihatsu Teiseki Kabushiki Kaisha to Kabushiki Kaisha INPEX. We at the INPEX Group will work as one with a view to embrace this era of great change as an opportunity to take a major leap forward.

Overview of the fiscal year ended December 31, 2020

The global economy slowed down due to the COVID-19 pandemic. The Basis of our Value Creation Oil prices fell, presenting a challenging business environment. During this fiscal year, the spread of COVID-19 caused production cut agreement in March. Although the bal- a worldwide stagnation of economic activity and a rapid ance of supply and demand began to improve in mid- deterioration of global economic conditions. This 2020, oil prices remained weak due to the resurgence of resulted in excess energy supply. The Brent crude oil COVID-19, primarily in Europe and the Americas. The price, a benchmark index for the Group, started the average Brent oil price during the fiscal year was US$43.2, period in the high US$60s per barrel but fell sharply down 32.7% year on year. Meanwhile, with regard to thereafter, caused by restrictions in the movement of foreign exchange rates, which also affect our business people, goods and services and a slowdown in economic performance, the dollar weakened towards the end of activity due to the spread of COVID-19 since February the fiscal year, and the average USD/JPY exchange rate 2020, as well as by the breakdown of the OPEC+ ended at ¥106.77, ¥2.26 higher year on year. Performance and Financial Overview

Brent crude oil price/Exchange rate Crude oil price Exchange rate (US$/bbl) (Yen/US$) 140 140

120 120

100 100

80 80

60 60

40 40

20 20

0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Note: Data for 2021 are through to the end of March.

INPEX CORPORATION Annual Report 2020 09

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Corporate structure strengthened after falling into the red due to one-off losses As for the consolidated financial results for the fiscal we recorded a net loss attributable to owners of parent year ended December 31, 2020, as mentioned earlier, of ¥111.6 billion in the fiscal year, down from ¥167.3 bil- our benchmark index of average Brent oil prices fell lion during the same period of the previous fiscal year, sharply year on year* and, as a result, net sales de- marking our first year-end loss since our integration in creased 34.2% year on year to ¥771.0 billion, operating 2008. Net income attributable to owners of parent, ex- income fell 55.6% to ¥248.4 billion and recurring profit cluding the effects of one-off profit (loss) such as impair- decreased by 56.0% to ¥257.3 billion. In addition, due ment losses, was ¥54.6 billion. to the recording of an impairment loss of ¥189.9 billion, We paid out an annual dividend of ¥24 per share based on our shareholder return policy of issuing stable * Effective the previous fiscal year (April 1, 2019 to December 31, 2019), the Com- pany changed its consolidated fiscal year-end from March 31 to December 31. dividend payouts. We will continue to pay out stable Rates of change in this document represent comparisons versus the same period of the previous fiscal year (January 1, 2019 to December 31, 2019).

Net production volume comparison with major international oil companies (Thousand boe) 4,000

3,500

3,000

2,500

2,000

1,500

1,000 573 500

0 87654321 9 10 11 INPEX 13 14 15 16 17

Source: Publicly available information of the following companies (in alphabetical order): Apache, BHP, BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, Hess, Lukoil, Marathon Oil, Occidental Petroleum, Repsol, Shell, Total, Woodside Note: All data as of December 31, 2020, except for BHP Billiton data being as of June 30, 2020 and INPEX data being as of December 31, 2020. INPEX data are in accordance with the relevant SEC regulations. Production includes unconventional resources such as bitumen & synthetic oil. The portion attributable to non- controlling interests is considered.

Proved reserves volume comparison with major international oil companies (Million boe) 20,000

15,000

10,000

5,000 3,730

0 87654321 9 INPEX 11 12 13 14 15 16 17

Source: Publicly available information of the following companies (in alphabetical order): Apache, BHP, BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, Hess, Lukoil, Marathon Oil, Occidental Petroleum, Repsol, Shell, Total, Woodside Note: All data as of December 31, 2020, except for BHP Billiton data being as of June 30, 2020 and INPEX data being as of December 31, 2020. INPEX data are in accordance with the relevant SEC regulations. Most projects owned by INPEX including the portion attributable to no-controlling interests are considered in INPEX reserves. INPEX reserves are evaluated internally, except for certain large capital projects which are outsourced to DeGolyer & MacNaughton. Reserves include unconventional resources such as bitumen & synthetic oil.

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dividends and strengthen shareholder returns in stages For our net production volume (combining crude oil in accordance with the improvement in our performance. and natural gas in barrels of oil equivalent), the daily During the period, we worked diligently to reduce in- production volume for the fiscal year ended December The Basis of our Value Creation vestments and costs to build a robust corporate structure 31, 2020 was approximately 573 thousand barrels, and enabling the stable continuation of business even in the corresponding volume for the fiscal year ending De- a low oil price environment. We exceeded our reduction cember 31, 2021 is expected to be approximately 570 targets of over 20% in terms of development investment thousand barrels. While we will continue to aim for the and over 40% in terms of exploration investment vis-à-vis targets set in our Medium-term Business Plan, we in- the outlook as of May 2020, successfully cutting develop- tend to focus not only on quantitative expansion but ment and exploration investments by 37% and 64%, also on qualitative growth, such as in technological ca- respectively. Furthermore, we implemented measures to pabilities. Proved reserves (combined crude oil and nat- further strengthen our resilience in the interest of busi- ural gas reserves in barrels of oil equivalent), a key ness continuity, responding to dramatic changes in the source of our future earnings, are expected to be ap- business and management environment. These mea- proximately 3.73 billion barrels. sures included securing sufficient liquidity on hand by

securing loans and strengthening our financial base. Performance and Financial Overview

Consolidated financial forecast for the fiscal year ending December 2021 and shareholder returns (as of May 13, 2021)

We expect to post net sales of 1,055 billion yen and pay out an annual dividend of 33 yen. Due to the recovery of the crude oil price from levels at 2021, as the consolidated financial forecasts for the six the beginning of the fiscal year, INPEX revised its consoli- months ending June 30, 2021 and the fiscal year ending dated financial forecasts for the fiscal year ending De- December 31, 2021 have been revised upward, INPEX cember 2021 on May 13, 2021. Assuming a crude oil expects the annual dividend for the current fiscal year to price average of 60.30 US dollars per barrel and an ex- amount to 33 yen per common stock (16.5 yen interim change rate average of 107.5 Japanese yen against the dividend and 16.5 yen year-end dividend), up 9 yen from US dollar for the full year, we expect to generate net the 24 yen per common stock dividend paid out last year. sales of 1,055 billion yen and a net income of 140 billion This increase is in alignment with the shareholder return yen, as outlined in our consolidated financial forecasts for policy outlined in the Medium-term Business Plan the fiscal year ending December 2021. Regarding 2018-2022. dividend forecasts for the fiscal year ending December

INPEX CORPORATION Annual Report 2020 11

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Business Development Strategy: Towards a Net Zero Carbon Society by 2050

Management environment and INPEX’s direction towards 2050 While COVID-19 continues to spread around the world, of a downward pressure on oil and natural gas demand, we are able to continue stably producing crude oil and changes in demand owing to the shift to electric vehi- natural gas thanks to measures taken to prevent the vi- cles with the transition to a net-zero carbon society and rus’s spread at production and operation sites the Com- the significant increase in demand for renewable pany is involved in around the world. Furthermore, energy. demand for oil and natural gas is expected to gradually We are carefully assessing the situation, recognizing return to pre-pandemic levels in step with the recovery that it is important to continuously bolster our resilience of the global economy. Over the medium to long term, and improve our efficiency (in investment and portfolio we also believe that strong demand can be expected management) while minimizing risks associated with primarily in Asia, driven by an increase in the global crude oil prices fluctuations and other uncertainties. As population and economic growth. Meanwhile, Japan a company responsible for the stable supply of energy, continues to face the challenge of increasing its ratio of we are tasked with meeting the energy demands of self-development of oil and natural gas to secure a sta- Japan and the world through our upstream oil and nat- ble source of energy. ural gas operations, which comprise our core business, As the response to global warming becomes a uni- while maintaining appropriate investment levels. In ad- versal issue, discussions for a net zero carbon society dition, as the energy transformation picks up pace are making headway. Major countries such as the EU toward a net zero carbon society, we recognize that we nations, the U.K. and Japan have announced so-called ourselves must actively pursue the development and “net zero targets,” aiming to reduce greenhouse gas utilization of various energy technologies such as hydro- emissions to effectively zero in 2050. Under these cir- gen and CCUS. cumstances, we anticipate the potential intensification

The “all-new” INPEX Group will work as one to drive its Business Development Strategy - Towards a Net Zero Carbon Society by 2050 In keeping with the long-term socio-economic outlook, In addition, our Japanese corporate name was in May 2018, we formulated our Vision 2040 and the changed from Kokusai Sekiyu Kaihatsu Teiseki Kabushiki Medium-term Business Plan 2018–2022. In January 2021, Kaisha to Kabushiki Kaisha INPEX on April 1, 2021. By we announced our Business Development Strategy universally adopting “INPEX,” a name well known out- - Towards a Net Zero Carbon Society by 2050, based on side Japan, we intend to promote a more unified group the changes in our business environment as noted management as an integrated global brand in Japan above. Going forward, we will make this Business and around the world. By providing a stable supply of Development Strategy a focal point, promoting more diverse and cleaner energy to Japan and the rest of the resilient and cleaner operations of our upstream oil and world over the long term, we will contribute to the goals natural gas businesses and pursing the five new busi- outlined in the Sustainable Development Goals (SDGs) ness pillars. By doing so, we will fulfill our two social related to energy, the environment, economic and responsibilities of providing a stable supply of energy social development and more. and responding to climate change and will promote Below, we present the two key points of the Business energy structure reforms towards the realization of a net Development Strategy: a stable supply of energy and zero carbon society by 2050. goals and initiatives towards a net zero carbon society by 2050.

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1. Stable supply of energy

We will optimize investments, costs and our portfolio to Indonesian government-owned electricity company, strengthen our resilience to low oil prices. In addition, a government-owned fertilizer company and a govern- by conducting exploration and development work ment-owned gas company regarding the long-term do- around existing oil and gas fields and taking advantage mestic supply of LNG and natural gas in Indonesia. of existing production facilities, we will shorten devel- Although COVID-19 is expected to cause delays, we are opment periods and pursue production start-ups at an making preparations for Front End Engineering and De- Growth Strategies for Value Creation early stage, making a strong push for more resilient up- sign (FEED) work, such as acquiring a variety of local stream businesses. data, with the aim of starting this work at an early stage. In parallel, by promoting the Ichthys LNG Project in We will continue to promote the Abadi LNG Project, Australia and the Abadi LNG Project in Indonesia, we aiming to start production in the latter half of the 2020s. will advance the shift to natural gas, which is a cleaner Meanwhile, we have maintained crude oil development energy source. Furthermore, we will appropriately ad- and production activities at our Abu Dhabi projects dress the transition to a net zero carbon society by mak- consisting of four offshore oil fields and the ADCO On- ing our upstream businesses cleaner. This will be shore Concession. We also commenced drilling opera- achieved through measures such as rigorous energy tions at Abu Dhabi’s onshore exploration Block 4 in May saving initiatives and energy efficiency improvements. 2021. In our domestic natural gas business, we continue For existing businesses, we will focus on projects in to steadily provide a stable supply of gas thanks to sta- our core business areas including Australia, Indonesia, ble production operations at the Minami-Nagaoka Gas Abu Dhabi and Japan, whilst maintaining an awareness Field in Niigata and the Naoetsu LNG Terminal as well of making operations more efficient and optimizing in- as our natural gas pipeline network. vestments. In the fiscal year ended December 31, 2020, For new projects, we undertake careful evaluations in The Basis of our Value Creation the Ichthys LNG Project in Australia continued to oper- our selection of projects, such as pursuing exploration ate smoothly, shipping 122 LNG cargoes. In the fiscal opportunities with early production start-up potential year ending December 31, 2021, we expect the project and aiming to enter businesses where we can be to ship approximately 10 cargoes per month, and we competitive even in a low oil price environment. In par- will continue to drill production wells to maintain stable allel, we will continue to strengthen our efforts to production and also install required facilities. expand our global gas value chain in Japan and the In the Abadi LNG Project in Indonesia, we signed growing markets of Asia. Furthermore, we will promote memorandums of understanding in 2020 with an carbon-neutral LNG marketing.

Please see pages 56 to 64 for our Project Overview by Region. Performance and Financial Overview

INPEX CORPORATION Annual Report 2020 13

011_0219287912106.indd 13 2021/07/01 16:34:58 Message from the President

2. Goals and initiatives towards a net zero carbon society by 2050

We have set goals to address climate change including (3) Enhance and emphasize renewable energy achieving net zero in absolute emissions by 2050, in initiatives contributing to the realization of the Paris Agreement’s INPEX will accelerate its initiatives both in Japan and climate change-related goals. around the world relating to geothermal power genera- Furthermore, we will focus our efforts on the follow- tion applying oil and gas development technologies as ing five business pillars to offer solutions that meet the well as offshore wind power generation, leveraging ex- needs of society in an era highlighted by changes to- perience in the construction and operation of offshore ward a net zero carbon society. floating facilities gained at operations sites overseas. (4) Promote carbon recycling and cultivate new (1) Reduce CO2 emissions from upstream operations business opportunities (Promotion of CCUS) INPEX will promote carbon recycling with the aim of As an oil and natural gas development company, INPEX setting up business operations at an early stage, lever- will promote CCUS, working to reduce CO2 in upstream aging synergies with its oil and gas business operations. businesses and supplying cleaner energy. INPEX will Furthermore, it will swiftly pursue initiatives in new busi- also promote a shift to natural gas and carbon neutral ness fields with growth potential. LNG marketing in conjunction with the efficient use of (5) Promote forest conservation energy and implementation of energy saving measures In addition to promoting projects targeting CO2 ab- across its entire business including exploration, devel- sorption through forest conservation, INPEX will support opment and production. distinguished REDD+* projects.

(2) Develop a hydrogen business * REDD+ project (Reducing Emissions from Deforestation and Forest Degrada- Envisioning the advent of a hydrogen society in the me- tion in Developing Countries): An initiative seeking to prevent deforestation and forest degradation through forest management and increase carbon stock dium- to long-term, INPEX aims to establish a hydrogen through afforestation business as an energy producer and supplier.

Please see pages 30 to 33 for more information about our Business Development Strategy - Towards a Net Zero Carbon Society by 2050.

ESG: Initiatives to create value over the medium to long term

Material CSR issues for building a sustainable management foundation As a management foundation to fulfill our two social We recognize that enhancing corporate governance responsibilities of providing a stable supply of energy is essential for transparent, fair, prompt and decisive de- and responding to climate change, we will continue to cision-making in the interest of sustainable growth and take action in line with six material CSR issues of great improvement of enterprise value over the medium to importance to us and our stakeholders: governance, long term. Based on this recognition, we continue to compliance, HSE (health, safety and environment), local evaluate the effectiveness of our Board of Directors. In communities, climate change response and employees. terms of our recent efforts, we are updating our officers’ As we do this, we will pursue sustainability and work to and directors’ remuneration system. This includes a create value across the entire value chain. Based on our scheme that incorporates ESG evaluations (including Business Development Strategy, Towards a Net Zero climate change response) and HSE performance into Carbon Society by 2050, we will increase the resilience director remuneration as well as launching a stock- of our upstream businesses, continue to provide a sta- based remuneration system for officers, with the in- ble supply of cleaner energy and further strengthen our volvement of the Nomination and Compensation efforts addressing environmental, social and gover- Advisory Committee. nance (ESG) issues.

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We also believe that building relationships of trust As for climate change response, we have set and are with local communities where we do business serves as working to achieve goals toward a net zero carbon soci- a foundation for our social license to operate. When ety by 2050. We are also strengthening our governance starting new business activities, we carry out impact as- structure on climate change response, assessing our sessments and take a variety of measures in advance to business strategies, evaluating climate change risks and minimize the negative impact of our business on the lo- opportunities and taking action to manage greenhouse cal community. Based on the INPEX Group Human gas (GHG) emissions. Furthermore, we are continuously Rights Policy, we also respect the human rights of peo- enhancing our information disclosure in line with rec- ple in our local communities and aim to contribute to ommendations from the Task Force on Climate-related Growth Strategies for Value Creation their economic and social development through open Financial Disclosures (TCFD). and highly transparent dialogue with stakeholders.

Please refer to our Sustainability Report 2021 for more information about our ESG initiatives. The Basis of our Value Creation

Together with our stakeholders, we will sustainably advance our business activities centered on our Performance and Financial Overview Business Development Strategy and fulfill our social responsibilities of providing a stable supply of diverse energy in a cleaner form and addressing climate change. By doing so, we seek to achieve sustainable growth and improved enterprise value of the “all-new” INPEX Group. We ask for the continued support and understanding of all our stakeholders.

Representative Director, President and CEO

INPEX CORPORATION Annual Report 2020 15

011_0219287912106.indd 15 2021/07/01 16:35:00 Financial and Operating Highlights (Five-Year Comparative Graphs) INPEX has changed its fiscal year-end from March 31 to December 31, effective from fiscal 2019. The fiscal year ended December 31, 2019 is a transitional, nine-month accounting period from April 1, 2019 to December 31, 2019.

Profitability Indices

Net Sales Net Income (loss) Attributable to Owners of Parent, Crude oil (¥ billion) Natural gas (¥ billion) Other (¥ billion) EBIDAX (Earnings before interest, depreciation and amortization, and exploration) Net income (loss) attributable to owners of parent (¥ billion) 1,009.6 971.4 1,000.0 EBIDAX (¥ billion) 13.6 933.7 18.0 12.8 354.6 874.4 15.3 223.0 14.6 170.7 294.8 316.8 208.1 771.0 285.4 242.6 14.9 217.9 229.3 227.2 250.5 123.6 96.1 46.2 40.4 710.3 782.7 764.0 16.8 679.2 617.2 505.5

-111.7 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 EBIDAX = Net income (including non-controlling interests) + Deferred tax + (1 – Tax rate) × (Interest expense – Interest income) + Foreign exchange gain and loss + Depreciation and amortization + Amortization of goodwill + Recovery of recoverable accounts under production sharing (capital expenditures) + Exploration expenses + Provision for exploration projects + Provision for allowance for recoverable accounts under production sharing – Gain on reversal of allowance for recoverable accounts under production sharing + Impairment loss Stability Indices

Net Assets Excluding Non-Controlling Interests, Cash Flow from Operations Equity Ratio, Net Debt, Net Debt/Net Total Capital Employed Cash ﬂow from operations (¥ billion) Net assets excluding non-controlling interests (¥ billion) Net debt (¥ billion) Equity ratio (%) Net debt/Net total capital employed (%) 292.9 2,932.9 2,943.2 3,006.5 3,040.7 275.8 278.5 274.7 2,916.7 2,736.5 238.6 67.167.1 68.368.3 68.668.6 62.762.7 62.762.7 59.059.0 183.7 901.5 943.9 1,051.8 422.5 -239.3 29.6 21.7 22.3 26.0 11.8 0.9 -8.1 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 • Net assets excluding non-controlling interests = Net assets – Noncontrolling interests • Equity ratio = Net assets excluding non-controlling interests / Total assets • Net debt = Interest-bearing debt – Cash and cash equivalents – Time deposits – Certificate of deposits – Public bonds and corporate bonds and other debt securities with determinable value – Long-term time deposits • Net debt / Net total capital employed = Net debt / (Net assets + Net debt) Efficiency Indices Performance Indices

Return on Equity (ROE) Cash Dividend per Share, Payout Ratio ROE (%) Cash dividend per share (2nd quarter end) (Yen) Cash dividend per share (Fiscal year-end) (Yen) Payout ratio (%)

30 4.1 3.2 24 24 1.6 1.4 0.6 18 18 18 18 12 156.7 15 9 9 9 56.9 65.1 9 12 12 9 9 9 -3.9 36.5 35.5 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 ROE = Net income attributable to owners of parent / Average of net assets ex- No payout ratio is shown for the year ended 2020/12, as a net loss was recorded cluding non-controlling interests at the beginning and end of the year in this year.

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Reserve/Production Indices

Net Proved Reserves (by product), Net Proved and Probable Reserves, Reserve Replacement Ratio (3-year average) Reserves-to-Production Ratio Crude oil Natural gas (Million boe) Probable reserves (Million boe) Proved reserves-to-production ratio (Years) Reserve replacement ratio 4,010 4,086 4,010 4,086 (3-year average) (%) 3,857 3,730 3,857 3,730 3,304 1,112 3,304 3,264 1,110 1,146 3,264 1,030 Growth Strategies for Value Creation 1,121 1,094 23.5 25.9

19.1 17.8 321 246 362 2,974 2,864 17.4 17.4 263 2,700 2,747 2,143 2,210 246 76

2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 • The reserves cover most of INPEX group projects including the equity-method affiliates. The reserves of projects which are expected to be invested a large amount and affect the Group’s future result materially are evaluated by DeGolyer & MacNaughton, and the others are done internally. • The proved reserves are evaluated in accordance with SEC regulations.

Average Expenses per BOE Produced, Exploration and Net Production (by product, barrels of oil equivalents) The Basis of our Value Creation Development Cost per BOE (3-year average) Crude oil Natural gas (Thousand boed) Average production cost per boe produced (Excluding royalty) (US$/boe) Exploration and development cost per boe (3-year average) (US$/boe) 586 573 514 521 16.9 15.7 16.4 450 424 234 242 175 173 121 121 7.7 8.4 7.1 352 7.6 339 348 329 303 331 5.9 5.9 5.7 5.3 5.2

2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 Performance and Financial Overview

Performance Indices

Price Earnings Ratio (PER), Price Book-Value Ratio (PBR) Exploration Success Ratio (3-year average) PER (Times) PBR (Times) Exploration success ratio (3-year average) (%)

74.3 77.0 47.6 60.7 61.8

45.3 43.8 34.6 16.0 13.4 — 0.7 21.0 0.4 0.5 0.5 0.5 0.3

2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12

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Please refer to our Sustainability Report 2021 for more information about our ESG performance data.

LTIF, TRIR Social Investment LTIF TRIR Social Investment (¥ million) 2.24 2,239 2,196

1.85 1.78 1.74 1,714 1,615 1,345 1,408 1.12 0.97

0.32 0.28 0.23 0.26 0.15 0.11

2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 * LTIF (Lost Time Injury Frequency): Rate of injury resulting in fatalities or lost time per million hours worked. * TRI R (Total Recordable Injury Rate): Rate of total fatalities, lost work day cases, restricted work day cases, and medical treatment cases per million hours worked.

Training Expenditure per Person (Unconsolidated) Female Managerial Employees Ratio (Consolidated) Training Expenditure per Person (¥ thousand) Female Managerial Employees Ratio (%) 5.6 5.4 217 5.1 205 207 4.9 193 193

151 3.7 3.3

2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12

Number and Ratio of Audit & Number and Ratio of Directors (Outside) Supervisory Board Members (Outside) Directors (Inside) Directors (Outside) Directors (Inside) Directors (Outside) Ratio of Directors (Outside) Ratio of Directors (Outside) 80 80 80 80 80 15 15 15 75 14 14 13 5 5 6 6 5 6 5 5 5 5 5 4 36 40 40 39 43 33 4 4 4 4 4 10 3 9 9 9 8 8

1 1 1 1 1 1 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 * 2019/12 figures are for the period from January to December 2019 while the accounting period for the fiscal year ended December 31, 2019 is nine months from April to December 2019.

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Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_ESGdata_IndependentAssurance.pdf

External Evaluation

INPEX has engaged in active dialogue with stakeholders through information disclosure and responded to external evaluations by third-party. The evaluations by external organizations and the major ESG Indexes for which INPEX has been selected as a component stock are shown below.

FTSE4Good Developed Index, S&P/JPX Carbon Efficient Index 2021 Health & Productivity Stock FTSE4Good Japan Index Selection Program Growth Strategies for Value Creation

FTSE Blossom Japan Index CDP Climate Change 2020 score: A- Certified Health and Productivity Management Organization 2021 (White 500) The Basis of our Value Creation

MSCI ESG Leaders Indexes STOXX® Global ESG Leaders Index Selected as “Industry Mover 2021” in the S&P Global Sustainability Award 2021

THE INCLUSION OF INPEX CORPORATION IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION OF INPEX CORPORATION BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES. Performance and Financial Overview

MSCI Japan ESG Select Leaders Indexes ECPI World ESG Equity, ECPI Global Excellence Award in the 24th Carbon Liquid, ECPI Global Developed Environment Communication Awards ESG Best in Class

MSCI Japan Empowering Women Index SOMPO Sustainability Index Certified Silver in the 2020 PRIDE Index (WIN)

INPEX CORPORATION Annual Report 2020 19

011_0219287912106.indd 19 2021/07/01 16:35:03 Segment Overview (Fiscal year ended December 31, 2020)

Eurasia

Net sales ¥68,369million Operating income ¥4,481million Proved reserves Net production (BOE) (BOE per day) million thousand Oslo 363 barrels 56 barrels (Norway) For more details see P. 59

London Nur-Sultan (United Kingdom) (Kazakhstan)

Niigata Tokyo

Abu Dhabi (United Arab Emirates)

Singapore (Singapore) Jakarta (Indonesia) Middle East & Africa Darwin (Australia)

Net sales ¥352,388million Perth Operating (Australia) income ¥186,408million Proved reserves Net production (BOE) (BOE per day) million thousand 2,166 barrels 226 barrels For more details see P. 61

Key group company headquarters and offices in Japan and overseas Note: Net Sales and operating income amounts are rounded down. Proved reserves and net production figures are rounded off.

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Americas

Net sales ¥13,481million Operating income (2,128)million

Proved reserves Net production Growth Strategies for Value Creation (BOE) (BOE per day) million thousand 41 barrels 18 barrels For more details see P. 63

Japan

Net sales ¥115,838million San Antonio The Basis of our Value Creation Operating (USA) income million Houston ¥14,341 (USA) Proved reserves Net production (BOE) (BOE per day) million thousand 137 barrels 24 barrels Caracas (Venezuela) For more details see P. 64 Performance and Financial Overview

Asia & Oceania Rio de Janeiro (Brazil)

Net sales ¥220,969million Operating income ¥56,522million Proved reserves Net production (BOE) (BOE per day) million thousand 1,023 barrels 250 barrels For more details see P. 56

INPEX CORPORATION Annual Report 2020 21

011_0219287912106.indd 21 2021/07/01 16:35:03 INPEX’s Business

INPEX has developed as a company built around its upstream business operations including the exploration, development and production of oil and natural gas. While it remains our important responsibility to meet the ever-growing energy demand around the world and especially in Asia, our current business environment is facing a wave of major economic and social changes, such as issues related to climate change and the transition to a low-carbon society. We recognize that tackling these challenges will not be easy. However, we consider these challenges to be great opportunities and are committed to actively promoting our business accordingly. Oil And Natural Gas E&P Activities The business activities of the oil and gas industry can be envisioned as the flow of a river. The upstream consists of the development and production of oil and natural gas. The midstream is where products are transported. The downstream refers to refining and sales. Our mainstay business is to handle operations in the upstream including the exploration, production and marketing of crude oil and natural gas. As shown in the business flow on this page, upstream business Major oil and natural gas producing regions activities can be further classified into the acquisition of blocks, exploration, appraisal, development, production and sales.

Acquisition of Blocks

We collect extensive information on legal system and country risks 1 related to areas in which oil and natural gas are expected to exist. We then apply and bid for mining rights and/or exploration and development rights and enter into a contract for exploration and development.

Signing ceremony of a contract

Exploration In addition to geological surveys, 2 we utilize geophysical surveys Appraisal conducted through satellite im- ages and seismic waves to assess Once the presence of oil and nat- the potential subsurface accumu- ural gas has been confirmed, we lations of oil and natural gas. Fur- drill appraisal wells to assess the thermore, we drill exploratory extent of the oil and gas fields wells to confirm the presence of and to evaluate the amount of re- oil and gas. The bit, a special drill serves. In addition, we make com- attached to the tip of the pipe, prehensive judgments regarding drills through hard rock while dig- the commercial viability of the ging into the ground. Drilling rig fields.

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Marketing There are many methods for marketing crude oil linked to spot 6 prices (market prices established one time per transaction), the spot prices themselves being mainly decided based on crude oil, which has become the transaction benchmark. Representa- tive crude oil spot prices are those quoted for Middle East Dubai crude, North Sea Brent crude and West Texas Interme- diate (WTI) from the United States, to name but a few. In contrast, as liquefied natural gas (LNG) projects require large amount of investments, in many cases LNG is supplied under a long-term contract between producers and buyers.

LNG tanker Growth Strategies for Value Creation

Production The extracted oil and natural 5gas are refined and processed. After separating oil and removing impurities (e.g., acid gas, water), we ship natural gas that can be used as a product. The Basis of our Value Creation

LNG plant

Development Performance and Financial Overview After a final investment decision 4 (FID) has been made, steps are taken to construct facilities to produce and ship crude oil and natural gas. This includes facilities that separate resources into their liquid and gaseous states to re- Appraisal move impurities and pipelines to facilitate transportation. In addi- 3 tion, the drilling of production wells is undertaken to extract crude oil and natural gas. Facility construction

Where do crude oil and natural gas come from? Crude oil and natural gas are thought to originate from organic matter, such as the remains of once-living organisms that accumulated at the bottom of seas and lakes, that was then subjected to extreme heat and pressure underground (organic origin theory). Crude oil and natural gas that have formed deep underground are lighter than the water in the earth, allowing them to gradually rise to the surface over a long period of time. If Reservoir evaluation (image) the crude oil and natural gas encounter highly dense geological formations on the way to the surface, however, deposits form that become oil and gas fields.

INPEX CORPORATION Annual Report 2020 23

012_0219287912106.indd 23 2021/06/30 10:33:01 INPEX’s Business

Risk management in upstream oil and natural Business Risks See pages 98 to 106 gas businesses Responding to risks of natural disasters, large-scale accidents, etc. In our upstream oil and natural gas businesses, operational accidents, disasters, cyberattacks and the spread of infectious diseases such as COVID-19 present the risk of delay or suspension of operations. We are proactively conducting risk management, including preparing an Emergency/Crisis Response Plan and conducting regular emergency response drills during ordinary times, in order to enhance our ability to respond to emergency situations caused by major accidents and disasters. We have formulated a Business Continuity Plan (BCP) and review it as appropriate to prevent the suspension of key operations. In order to prevent major accidents such as fires, explosions and large-scale oil spills, we ensure proper due diligence throughout each phase of the project life cycle: exploration, development, production and abandonment. Decisions on investment We have introduced guidelines for economic and risk assessments. After recognizing major risks, we analyze and examine whether to take on new projects. The INPEX Value Assurance System (IVAS) Committee also works as a cross-organizational mechanism mainly for technical evaluations at each project phase, such as exploration, evaluation and development. Our expected average annual investment over the next five years is between ¥250 to ¥300 billion, assuming an oil price of US$50 to US$60. Over the medium term, we plan to invest approximately ¥20 to ¥30 billion of that annually to develop the five business pillars in our Business Development Strategy - Towards a Net Zero Carbon Society by 2050. When making investment decisions, we emphasize volume as well as value and strategic fit. At the same time, we also consider divestment opportunities to comprehensively optimize our portfolio. Policy on financing Oil and natural gas exploration and development projects, as well as the construction of natural gas supply infrastructure, require significant funding. The Group relies on cash flow derived from internal reserves, together with external sources, to procure funds. The Group’s basic policy is to utilize internal cash flow and external equity financing to fund exploration projects and to utilize internal cash flow and external loans to fund development projects and the construction of natural gas infrastructure. For the Ichthys LNG Project, we utilize loans from project financing by domestic and overseas export credit agencies and commercial banks. In oil and natural gas upstream businesses, it is common for companies to form business partnerships for the purpose of dispersing risks and financial commitments. In fiscal 2020, the Group received loans from the Development Bank of Japan and Japan Bank for International Cooperation for the purpose of further strengthening its financial base in a low oil price environment. The Group also took measures to reduce financial costs such as refinancing its project finance contracts for the Ichthys LNG Project. In March 2021, the Group issued corporate bonds aiming to diversify its financing methods. Responding to oil and natural gas price Brent crude oil price/Exchange rate fluctuations and exchange/interest rate Crude oil price Exchange rate fluctuations (US$/bbl) (Yen/US$) 140 140 A large percentage of crude oil prices and natural gas prices in overseas businesses are determined by international mar- 120 120 ket conditions. In addition, these prices fluctuate in response to the influence of a variety of factors including 100 100 supply and demand as well as trends and conditions of the 80 80 global economy and financial markets. For the fiscal year ending December 31, 2021, as of the beginning of the 60 60 period, a fluctuation of US$1 in the price of one barrel of crude oil is estimated to have an impact of approximately 40 40 ¥6.6 billion annually in net income, and a fluctuation of ¥1 in the USD/JPY exchange rate is estimated to have an impact 20 20 of approximately ¥2 billion annually in net income. Although 0 0 the Company is taking measures to reduce a portion of the 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 risks associated with fluctuations in foreign currency ex- Note: Data for 2021 are through to the end of March. change rates, interest rates and oil prices, these measures by no means cover all possible risks and as a result, the impact of fluctuations cannot be completely eliminated. Responding to climate change risks In order to achieve the goals of the Paris Agreement, and amid growing interest in addressing global climate change, efforts are being made globally to reduce greenhouse gas (GHG) emissions, which are recognized as the cause of climate change and global warming. The Group identifies, assesses and manages climate change risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Responding to country risks To handle country risks in the countries where we operate, we have established guidelines that include the maximum target amount of accumulated investment balance for high-risk countries.

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012_0219287912106.indd 24 2021/06/30 10:33:01 INPEX’s Vision and Value Creation Five Business Pillars under the Business Development Strategy - Towards a Net Zero Carbon Society by 2050

We will actively promote five business pillars in order to offer solutions responding to the needs of society in an era of reform towards a net zero carbon society.

Five Business Initiatives Phase Pillars

1 CO2EOR demonstration tests in Niigata, Japan Under Growth Strategies for Value Creation CCUS (CO2EOR) demonstration tests at one of INPEX’s oil fields in Japan. demonstration CCUS/CCS Businesses Ichthys LNG Project CCS Under INPEX is evaluating the feasibility of sequestering CO2 captured at the INPEX-operated Ichthys LNG plant in Darwin, Australia. An appropriate injection site is to be selected based on a detailed evaluation. consideration Concept of integrated hydrogen business test project in Kashiwazaki, Niigata, Japan INPEX plans to demonstrate the feasibility of a business model utilizing natural gas from INPEX assets to Under produce carbon-free hydrogen and secure a greater volume of resources through a natural gas reforming consideration process and conducting CCUS with the CO2 emitted from this reforming process.

Hydrogen Clean ammonia business in Abu Dhabi INPEX is evaluating opportunities to produce hydrogen and ammonia from natural gas produced in Abu Under Business Dhabi. CO2 from the gas reforming process will be utilized in CCUS / EOR at an onshore Abu Dhabi oil field consideration in which INPEX has a participating interest, with the objective of realizing clean ammonia.

Carbon-free hydrogen business outside Japan Under INPEX is examining ways to participate in a hydrogen liquefaction and offloading business to develop its own hydrogen business abroad. consideration Sarulla Geothermal IPP Project in Indonesia, one of the world’s largest geothermal projects In commercial The Basis of our Value Creation Launched commercial operations at Unit 1 (110MW) in March 2017, at Unit 2 (110MW) in October 2017 and operation at Unit 3 (110MW) in May 2018, with plans for additional development. Geothermal resource surveys for geothermal power plant construction in the Oyasu area of Akita Prefecture and the Amemasu area of Hokkaido, Japan Surveys Renewable Continue to explore the possibility of commercialization in the Amemasudake area. Environmental underway Energy assessments are ongoing in the Oyasu area, with flow tests conducted in 2020 (currently under assessment). Business INPEX Mega Solar Joetsu in Joetsu, Niigata, Japan In commercial Expected power generation is approximately 5.33 million kilowatt-hours annually, enough energy to power about 1,600 homes for a year in Japan. operation Fixed-bottom offshore wind power projects in Noshiro, Mitane and Oga in Akita Prefecture, Japan Under Participated in a consortium for the implementation of fixed-bottom offshore wind power projects in consideration Noshiro, Mitane and Oga in Akita Prefecture, Japan, the projects are currently in open bidding.

Establishment of methanation testing facility at the Koshijihara Plant located within Performance and Financial Overview INPEX’s Nagaoka Field Office 2 Trial runs In this NEDO -sanctioned project to develop technologies that enable the effective utilization of CO2, we underway have established a testing facility that produces methane from CO2 and hydrogen. Trial runs have been Carbon completed and various tests are underway. Recycling and Performance validation of solar hydrogen production in Darwin, Australia by ARPChem, New Business in which INPEX participates Tests ongoing Opportunities Constructed a solar hydrogen production test facility in Darwin, Australia and began its performance validation. INPEX-Terra Drone Intelligent Drone Plan Under Invested in Terra Drone Corp. and commenced joint studies towards the realization of the plan. consideration Support of Rimba Raya REDD+3 Project in Indonesia In progress Through this support, we expect to acquire 5 million tons of carbon credits over the next five years. Forest Eucalyptus tree planting and management project in southwestern Australia Conservation In progress Promote CO2 absorption through eucalyptus tree planting and management. Project Savanna fire management program in Northern Territory, Australia In progress Reduce greenhouse gas emissions by strategically controlling savanna fires

*1 Enhanced Oil Recovery. In this document EOR includes Enhanced Gas Recovery. *2 New Energy and Industrial Technology Development Organization (Japan)

*3 Reducing Emissions from Deforestation and forest Degradation – a concept defined in the Cancun Agreements (2010) aiming to reduce of CO2 emissions by controlling deforestation and deterioration through forest management and actively increasing carbon stock through afforestation.

Business Development Strategy: Five Business Pillars See page 32

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012_0219287912106.indd 25 2021/06/30 10:33:02 INPEX’s Strengths

INPEX will leverage its strengths to promote more resilient, cleaner upstream oil and natural gas businesses, and proactively engage in energy structure reforms towards the realization of a net zero carbon society by 2050, which we see as both a challenge and an opportunity. By doing so, we will aim for sustainable growth and improvement in enterprise value.

I A highly competitive project portfolio II Technical capabilities to carry out projects Diverse human resources experienced in exploration, III 6 Strengths development, operations, marketing and other areas of INPEX IV Close partnerships with oil-producing countries Steady growth in cash flow and a solid and stable V financial base VI Support from the government of Japan

I A highly competitive project portfolio

INPEX has a highly competitive global project portfolio, primarily in its core business areas of Australia, Abu Dhabi, In- donesia and Japan, and is working to further enhance its corporate value by engaging in various projects and achieving strategic project portfolio flexibility. Also, by promoting the Ichthys LNG Project in Australia and the Abadi LNG Project in Indonesia, we will advance the shift to natural gas, which is a cleaner energy source. In addition, we will appropriately address the transition to a net zero carbon society by making our upstream businesses cleaner. This will be achieved through measures such as rigorous energy saving initiatives and energy efficiency improvements.

Japan

Abu Dhabi A highly competitive project portfolio centered on our core business areas of Australia, Abu Dhabi, Indonesia and Indonesia Japan

Australia

Major projects in our core business areas

Abu Dhabi Australia Indonesia Japan Onshore oil fields (Abu Dhabi Ichthys LNG Project Abadi LNG Project Minami-Nagaoka Gas Field, Onshore Concession; in (in production phase) (in preparation for development) one of Japan’s largest gas fields production), offshore oil fields (in production); 1,500-km trunk (Upper Zakum, Lower Zakum, pipeline; Naoetsu LNG Satah and Umm Al-Dalkh oil Terminal fields; in production)

26 INPEX CORPORATION Annual Report 2020

012_0219287912106.indd 26 2021/06/30 10:33:02 INPEX’s Vision and Value Creation II Technical capabilities to carry out projects

Leveraging our technological capabilities and experience cultivated in the Ichthys LNG Project, we will continue to strengthen our technological capabilities in oil and natural gas projects, and aim to develop and apply these to technologies addressing climate change.

As a technical leader, INPEX will develop and strengthen “technological capabilities to continue and optimize its oil and natural gas projects” and “technological capabilities to address climate change.” Technology Roadmap 2018 Growth Strategies for Value Creation Core TechnoIogies Next Challenges Emerging Maintain and improve existing Raising to essential technologies technology Deep Water Development Low Carbon Technologies Create Value (CCUS, Renewable Energy) Carbon Cycle Exploration Technologies (Design, Construction & (Next CUUS) Tight Reservoir Realize Value Development Operation) Drilling & Completion CO Integrated Reservoir Characterization LNG 2

EOR Dissolved-in-Water type Productivity and Recovery Improvement Natural Gas Subsea Production System Sustain Value Stable Operation Next EOR (Safety, Efficiency, Cost Reduction) The Basis of our Value Creation Digital Transformation Leveraging digital technology for lean and resilient culture Strengthening of Technology infrastructure Development of technical human resources, knowledge creation/sharing/utilization, Technical standards/guidelines dissemination and expansion, climate change Turning our core technologies built up in conventional projects into specialized Core Technologies technologies We will steadily maintain and improve core technologies indispensable to our conventional E&P business while actively incorporating advancements and innovations of such technologies worldwide. In addition, we will nurture the LNG-related technologies acquired through the development of Ichthys and operations of the Naoetsu LNG Terminal as well as tight reservoir development technologies acquired through the development of oil and gas fields in Japan and overseas.

Challenging current technical issues, conducting demonstrations Performance and Financial Overview Next Challenge and building new core technologies We will continue to work on upstream technologies such as the development of deepwater oil and gas fields and the improvement of the rate of CO2 enhanced oil recovery (EOR) and incorporate these into our core technologies. We will also explore renewable energy solutions such as offshore wind power generation, Carbon dioxide Capture and Storage (CCS) and Carbon dioxide Capture and Utilization (CCU) and build these into our core technologies.

Emerging Technologies for the future

We will continue to develop technologies of the future that will help shape the future energy environment. Such future technologies include: more efficient development of water-soluble natural gas since huge domestic reserves are known to exist; further research on recovery improvement technologies, such as improved water flooding technology and chemical flooding technology; and Enhanced Oil Recovery (EOR) technology using micro-organisms. In addition, we will pursue studies on Carbon Dioxide Capture, Utilization and Storage (CCUS) for the further reduction of and innovative utilization of carbon dioxide.

Digital Transformation Building a resilient corporate structure

By maximizing the application of digital transformation in its various technologies, INPEX will work to further improve operational efficiency and build a resilient corporate structure. In 2021, we invested in Terra Drone Corp., an air mobility startup, and began planning towards the realization of the INPEX-Terra Drone Intelligent Drone Plan.

Business Development Strategy: Five Business Pillars See page 32

INPEX CORPORATION Annual Report 2020 27

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Diverse human resources experienced in exploration, development, operations, III marketing and other areas

In order to constantly strengthen responsible management, INPEX as a global organization values workforce diversity and the development of employees who share INPEX Values* on a global level. To achieve this, through discussion among HR divisions located around the world, we formulated the INPEX HR VISION, which is comprised of four key elements. HR activities based on these elements are implemented from a global perspective, linking these with development and performance maximization for each employee, as well as team performance to contribute to becoming a highly competitive organization that offers job satisfaction. * https://www.inpex.co.jp/english/company/value.html

Workforce diversity and global employees who share common values for building the foundation for sustainable growth

Make INPEX the best place to work – Maximize team performance through Talent “the employer of choice” Organization HR Management Process Attraction and Employee satisfaction and opportunity for Effectiveness Workforce planning and organization review growth Engagement Optimized staffing planning within the Total Reward 1 2 organization INPEX HR VISION Development of future leaders and Support business strategy with world- global workforce capability Focus on class functional expertise HR Development of future leaders People Effective, innovative, and trusted HR processes Talent management cycle Excellence and systems Diversified career development programs Development Develop HR professionals 3 4 Collaborate globally and share best practices

Human resources and organizational development INPEX provides a curriculum combining e-learning, hands-on training focused on overseas assignments and group training designed to cultivate mindsets and improve skills necessary for working at INPEX so that employees can constantly contribute to its business over the long term and continuously improve themselves. INPEX provides grade-specific training according to the required roles, responsibilities and capabilities of each employee category, grade and position. In addition, as practical training for younger employees, the Company offers opportunities such as training at overseas offices and studying at overseas specialized training institutions so that younger employees can work actively in an international business environment. It also conducts on-the-job training programs at its corporate headquarters for local employees hired at overseas offices, promoting interpersonal exchange and cultivating a shared global awareness. In addition, INPEX conducts 360-degree surveys, awareness surveys, organizational diagnoses and other measures on a regular basis to maintain and improve its organizational strength. It has also established systems for in-house recruitment and assignment of multiple roles, supporting its employees in working with autonomy, developing their capabilities and promoting innovation.

Human resources development curriculum

Conceptual skills / Human skills Technical skills Career design (logical thinking; task-formation and problem- (specialized knowledge and experience; work (self-actualization) solving skills; management; leadership; interpersonal skills) skills [including language skills]) Career training Grade-specific training Study overseas For 55 year-olds General Manager training Business-practice training For 40 year-olds Line manager training (1) (2) (3) GSP technical employee training For 30 year-olds Managerial employee training (M-3) GSP corporate employee training S-3 training Support for younger employees GSE overseas personnel (career/skill development) J-1 training (for administrative staff) / development system J-2 training (for GSE (Global Staff Experts)) GSP (Global Staff Professional) Domestic/overseas seminars Third-year follow-up training Business skill training technical employee skill map interview and conferences

First-year follow-up training HR development for leaders GSP corporate employee career

interview Self-development assistance Training for new technical Mentor/supporter systems Group training for new graduates employees

To form a common understanding of business among employees and using this to gain organizational thinking skills and deliver results as an organization (gain the ability to execute and adapt using grade-specific training based on a foundation of common understanding)

28 INPEX CORPORATION Annual Report 2020

012_0219287912106.indd 28 2021/06/30 10:33:02 INPEX’s Vision and Value Creation Promoting diversity & inclusion At the INPEX Group, “diversity” refers to all the differences that exist between its people and businesses. These include race, gender, sexual orientation, gender identity, age, beliefs, religion, personal background, disabilities and care responsibility as well as differences in people’s knowledge and experiences. “Inclusion” means creating a workplace and relationships in which everyone can feel valued and respected. Going forward, we plan to push ahead with diversity and inclusion (D&I) and improve capabilities across the organization to raise the general appeal of INPEX as a company and receive greater recognition from the global community. We are also Specific initiatives in 2020 include a number of efforts to pro- Growth Strategies for Value Creation advancing initiatives mote D&I from a diverse set of viewpoints: conducting online to promote the training for superiors with subordinates who have children; online active participation of women. LGBT training; and online social gatherings using chat functions for employees with hearing difficulties and more. In recent years, we have introduced a system for working from home and a flextime work system company-wide, enabling flexible working styles We have received a silver certification that suit each employee’s individual circumstances. for the second consecutive year from Work with Pride, an assessment In 2021, we plan to hold in-house seminars on unconscious indicator for initiatives to help sexual bias and psychological safety, and we will work to create an envi- minorities. ronment where diverse human resources can maximize their abili- ties with greater peace of mind.

IV Close partnerships with oil-producing countries The Basis of our Value Creation In Abu Dhabi, based on our long-standing relationship of trust with the Abu Dhabi government and ADNOC (Abu Dhabi National Oil Company), we have acquired and extended interests in the oil fields with significant reserves. We launched business activities in our core business areas of Australia, Abu Dhabi, Indonesia and Japan in 1986, 1973, 1966 and 1941, respectively, and have built long-term relationships with various stakeholders in each country, including governments.

V Steady growth in cash flow and a solid and stable financial base

As of the end of fiscal 2020, we continued to maintain abundant liquidity on hand with a balance of cash on hand amounting to approximately ¥200 billion, and continued to maintain commitment lines with sufficient volume and duration from core banks.

We also announced that we will issue corporate bonds in 2021 for the first time for purposes including the diversifi- Performance and Financial Overview cation of our financing methods. We will leverage these to spearhead major projects as operator (for certain projects) in our core business areas of Australia, Abu Dhabi, Indonesia and Japan, as well as to conduct strategic investments in research and development in new areas, working to further increase our enterprise value.

VI Support from the government of Japan

We will utilize financial support from Japan Oil, Gas and Metals National Corporation (JOGMEC), Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), and others in advancing oil and natural gas upstream projects presenting significant risk and requiring significant investment over a long period of time, while receiving high-level support from the Japanese government on resource diplomacy. In addition, we will cooperate on the development of policy frameworks for efforts toward a net zero carbon society by 2050 and make appropriate use of policy support from agencies including NEDO and JOGMEC to ensure speed and efficiency.

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012_0219287912106.indd 29 2021/06/30 10:33:05 Featured Content Business Development Strategy - Towards a Net Zero Carbon Society by 2050

Basic Management Policy INPEX will proactively engage in energy structure reforms towards the realization of a net zero carbon society by 2050, while responding to the growing energy demands of Japan and the world and fulfilling the company’s responsibility for the development and stable supply of energy over the long-term.

1 Stable Supply of Energy

INPEX will continue to position its upstream business as its core business and will work to fulfill its Early-stage Resistance two social responsibilities of providing a stable development to low oil supply of energy and responding to climate & production prices change by promoting more resilient and cleaner operations. A More Resilient & INPEX will accelerate a shift to natural gas and Cleaner Upstream continue to enhance initiatives for the expansion Business of its global gas value chain in Japan and the growing markets of Asia. Furthermore, it will pro- Energy mote carbon-neutral LNG marketing, etc. Gas shift savings & efficiency

2 Goals and Initiatives Towards a Net Zero Carbon Society

INPEX will set climate change response goals to contribute to the realization of the Paris Agreement objectives in relation to climate change.

Scope 1 + 2 Scope 1 + 2 Scope 3

2050 2030 Scope 3 NET ZERO 30% OR MORE REDUCTION work together with all relevant in absolute reduction of net stakeholders to address challenges emissions1 carbon intensity2 across entire value chains

About Scopes 1, 2, and 3 Scope 1: Direct emissions from sources owned or controlled by the reporting company Scope 2: Indirect emissions from electricity, steam, heat and cooling purchased and consumed by the reporting company Scope 3: All other indirect emissions generated in the reporting company’s value chain(s) 1: INPEX equity share basis 2: In comparison with 2019

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012_0219287912106.indd 30 2021/06/30 10:33:05 INPEX will actively promote five business pillars to offer solutions that meet the needs of society. INPEX’s Vision and Value Creation CO2EOR demonstration tests Reduce CO2 in Niigata, Japan, etc. emissions from upstream Ichthys LNG Project CCS Geothermal: operations Japan & Indonesia Wind: Enhance and emphasize Fixed-bottom offshore renewable Concept of Integrated project in Akita, Japan, aim energy Becoming Hydrogen Business to commercialize floating initiatives Test Project in a Pioneer Develop offshore wind initiatives Kashiwazaki, Niigata, of Energy a hydrogen business Japan Transformation Clean Ammonia Business in Abu Dhabi Methanation: Promote Carbon-free hydrogen Growth Strategies for Value Creation Scale up in stages toward carbon recycling business outside Japan commercialization and cultivate new business opportunities Artificial photosynthesis Promote forest New fields: conservation Support of Rimba Raya Drones, methane cracking, REDD+ project in Indonesia carbon materials business

Business Milestones 2021 2050

Reinforcement of earning power Business implementation Active business expansion Hydrogen business expansion

Operations Additional The Basis of our Value Creation development of start-up at Oyasu Sarulla project Business expansion Power from (Akita), etc. (Indonesia) renewables + Renewable Hydrogen fields Experience building Entry into production utilizing in offshore fixed- offshore Business expansion surplus power bottom sector floating sector CCUS and hydrogen Reinforcement of earning power as Reduction of CO2 from INPEX assets Business establishment core business

Ichthys Commercialization (Processing CO2 emitted by other companies) Integrated Business expansion

demonstration efficiency and low- Performance and Financial Overview tests in Japan Commercialization cost realization (Developing hydrogen Abu value chain) Dhabi Upstream fields

Outlook on Cash Allocation The average scale of annual investment for the next five years is expected to be about ¥250 to ¥350 billion (assuming a crude oil price of US$50 to US$60). Of this, we plan to invest about ¥20 to ¥30 billion annually in the five business pillars over the medium term. Average scale of annual investment over the next five years (Scale of investment based on US$50–US$60 oil price assumption)

Approx. Approx. billion annually ¥20–30 billion ¥250–300 annually

Outlook to invest about ¥20 to ¥30 billion annually in the five business pillars over the medium term

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Reduce CO2 Emissions from Upstream Operations (CCUS)

Taking advantage of its track record and technical expertise in CCUS (Japan’s first CCUS project commenced at IN- PEX’s Kubiki Oil Field in Niigata in 1988), INPEX seeks to adopt CCUS solutions to safely store and efficiently utilize CO2 in Japan and overseas including at the Ichthys LNG Project in Australia. INPEX will promote a shift to natural gas and carbon neutral LNG marketing in conjunction with the efficient use of energy and implementation of energy saving measures across its entire business including exploration, development and production.

CO2EOR demonstration test Ichthys LNG Project CCS in Niigata, Japan, etc.

INPEX plans to conduct CCUS (CO2EOR) demonstra- INPEX is evaluating the feasibility of sequestering of CO2 captured at tion tests at one of its oil fields in Niigata, Japan, ap- the INPEX-operated Ichthys 100 200 plying EOR recovery improvement technology (CO2 LNG plant in Darwin, Australia. km km foam technology) being developed by the company. An appropriate injection site Approx. 890 km The demonstration tests will consist of drilling two is to be selected based on Timor Sea new wells in 2022, analyzing reservoir core samples a detailed evaluation. Ichthys Field Northern and conducting CO2 injection tests. The tests are ex- Territory pected to boost the application of CCUS technologies in Japan as well as CO2EOR technologies at INPEX’s upstream assets overseas. Darwin Ofﬁce Australia Ichthys gas-condensate field location • Browse Basin, Australian North West Shelf Perth Ofﬁce • Approximately 200 km offshore Western Australia

Develop a Hydrogen Business

Envisioning the advent of a hydrogen era, INPEX aims to expand its energy business to include the production and supply of hydrogen. Utilize natural gas from INPEX assets to produce carbon-free hydrogen and secure greater resource levels through a natural gas reforming process and conducting CCUS with the CO2 emitted from this reforming process. Enhance R&D activities to establish a hydrogen value chain in collaboration with external companies and organizations. Aim to create a hydrogen society at an early stage through collaborative cross-sector projects on the social implementation of hydrogen as a member of the Japan Hydrogen Association.

Concept of Integrated Hydrogen Business Test Project in Kashiwazaki, Niigata, Japan

An integrated “all-in-one” demonstration test is planned Pipeline in Niigata, Japan, taking advantage of INPEX’s upstream technologies and domestic natural gas supply infrastructure. INPEX will demonstrate a hydrogen business model delivering hydrogen produced at INPEX’s overseas natural gas assets to Japan. Core Aane *Direct Air Capture

Clean ammonia business in Abu Dhabi Carbon-free hydrogen business outside Japan INPEX is evaluating opportunities to produce hydrogen and INPEX is examining ways to participate in a hydrogen lique- ammonia from natural gas produced in Abu Dhabi. CO2 from faction and offloading business to develop its own hydrogen the gas reforming process will be utilized in CCUS / EOR at business abroad. an onshore Abu Dhabi oil field in which INPEX has a partici- INPEX is making use of knowledge and experience in natural pating interest, with the objective of realizing clean gas liquefaction (LNG). ammonia. The ammonia is to be imported to Japan using marine ves- sels and supplied to Japanese utilities as clean fuel for power plants, contributing to the reduction of CO2 emissions. A feasibility study is being proposed to ADNOC (UAE) and discussions with ADNOC and domestic partners are ongoing (as of 2021).

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Enhance and Emphasize Renewable Energy Initiatives

INPEX will accelerate its initiatives both in Japan and around the world relating to geothermal power generation applying oil and gas development technologies, as well as offshore wind leveraging experience in the construction and operation of offshore floating facilities gained at operations sites overseas.

Geothermal Offshore wind High potential in Japan Plans to realize fixed-bot- and Indonesia where IN- tom wind power project PEX has considerable offshore Noshiro, Mitane business experience. and Oga in Akita Prefec- Applying oil and gas de- ture, Japan. velopment technologies Ability to apply business such as geological / geo- management experience Growth Strategies for Value Creation physical surveys and of designing and operat- drilling. ing floating structures for Sarulla Geothermal Independent crude oil and natural gas Generic image of offshore wind power Planning further develop- Power Producer (IPP*) Project ment of Sarulla in Indone- production at Ichthys and elsewhere. sia, one of the world’s largest geothermal projects. Plans to create a floating offshore wind power business, Domestic track record of conducting development studies, which has advantages for first movers, leveraging INPEX’s exploratory drilling and flow tests in the Oyasu area of Akita strengths. Prefecture and the Amemasu area in Hokkaido, Japan. * Independent power producer

Promote Carbon Recycling and Cultivate New Business Opportunities

INPEX will promote carbon recycling with the aim of setting up business operations at an early stage, leveraging synergies with its oil and gas business operations. The Basis of our Value Creation Acceleration of methanation business Artificial photosynthesis (towards the supply of carbon-free methane) (towards the supply of hydrogen derived from renewables) Plans to complete basic Participating in the Japan Technological Research Associa- technical development in tion of Artificial Photosyn- fiscal 2021, scale up the thetic Chemical Process test facility in stages while (ARPChem) and in charge implementing cost reduc- of technical development tion measures and achieve for production of solar hy- commercialization beyond drogen through catalytic 2030. reaction. Steady implementation of Testing facilities at the Koshijihara Plant R&D with aims to ulti- (Niigata) (a NEDO project) mately achieve 10% solar Artificial photosynthesis panels energy conversion effi- installed in Darwin, Australia ciency; plans to evaluate

practical application. Performance and Financial Overview

INPEX will swiftly pursue initiatives in new business fields showing signs of growth. Improved operational stability and security through pipeline management utilizing drones Future Introduction of DX relating to energy businesses Development of methane direct cracking technologies; development of technologies to directly crack methane business into hydrogen and carbon prospects Carbon materials business; effective use of carbon extracted from the direct cracking of CO2 Development of CO2 extraction, processing and utilization technologies

Promote Forest Conservation

INPEX is working to support distinguished forest conservation projects that contribute to climate change response, biodiversity conservation, and improved living standards for local communities through CO2 absorption from forest conservation. In February 2021, we established an agreement with InfiniteEARTH to acquire five million tons of carbon credits over five years by supporting the Rimba Raya Biodiversi- ty Reserve REDD+ Project in Indonesia. This is a 30-year project to protect approximately 65,000 hectares of peat forest in central Kalimantan in Indonesia. Introductory video https://infinite-earth.com/inpex

INPEX CORPORATION Annual Report 2020 33

012_0219287912106.indd 33 2021/06/30 10:33:05 Progress Against Medium-term Business Plan 2018-2022 In May 2018, INPEX formulated its Medium-term Business Plan 2018–2022: Growth & Value Creation, laying out initiatives and targets over the five-year period between fiscal 2018 and fiscal 2022. INPEX is committed to achieving the targets set out under the Plan. Financial target

FY 2019/12 FY 2019/3 FY 2020/12 Results Results Results (9 months) FY 2021/12* FY 2022/12 (1st year of the (3rd year of the Targets Medium-term (2nd year of the Medium-term Outlook Business Plan) Medium-term Business Plan) Business Plan)

Brent crude oil price $70.86 $64.27 $43.21 $60.3 $60.00 (US$/ barrel) Exchange rate ¥110.93 ¥108.66 ¥106.77 ¥107.5 ¥110.00 (JPY/USD) Net sales ¥971.4 billion ¥1,000.0 billion ¥771.0 billion ¥1,055.0 billion Around ¥1,300.0 billion Net income attributable to owner of parent ¥96.1 billion ¥123.6 billion ¥-111.7 billion ¥140.0 billion Around ¥150 billion Net production volume 424 KBOED 586 KBOED 573 KBOED 570 KBOED 700 KBOED

* Outlook as of May 13,2021

Cash allocation policy, actual allocation and outlook

Allocate cash flow from operations and others over the Medium-term Business Plan period (five years) in the following order of priority: (1) debt reduction, (2) shareholder returns, (3) investment for growth.

(1) Debt reduction Net Debt and Equity Ratio Net debt (¥ billion) Equity ratio (%) Steadily reduce debt by working to make repay- (¥ billion) 1,051.8 (%) ments, such as for Ichthys LNG project finance loans. 1,000.0 901.5 943.9 100

Total INPEX net loans including the off-balanced net 750.0 67.1 68.3 68.6 75 62.762.7 loans of the Ichthys IJV amounted to approximately 59.0 ¥2.3 trillion as of the end of December 2019 and 500.0 422.5 50

approximately ¥2.1 trillion as of the end of Decem- 250.0 25 ber 2020. 29.6 0 0

-250.0 -25 -239.3 2016/3 2017/3 2018/3 2019/3 2019/12 2020/12

(2) Shareholder returns Annual Dividends per Share and Dividend Payout Ratio Dividend (ordinary dividend) Dividend (commemorative dividend) Shareholder returns during the period covered by Dividend (dividend increase) Dividend payout ratio (RHS) (¥) (%) the Medium-term Business Plan 36 ¥33 100 Maintain stable dividends not falling below ¥24 per ¥30 share 30 75 65.1 Enhance shareholder returns by incrementally ¥24 6 ¥24 improving dividends in line with earnings growth 24 50 6 35.5 Payout ratio of 30% or higher 36.5 34.4 18 25 18 18 24 24

0 0 2018/3 2019/3 2019/12 2020/12 2021/12 (forecast) * The dividend payout ratio for the fiscal year ended December 31, 2020 is not available due to net loss.

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(3) Investment for growth

FY 2019/12 FY 2019/3 FY 2020/12 Results Results Results FY 2021/12* FY 2022/12 (1st year of the (9 months) (3rd year of the (2nd year of the Targets Medium-term Medium-term Outlook Medium-term Business Plan) Business Plan) Business Plan)

Development expenditure ¥471.0 billion ¥221.7 billion ¥167.2 billion ¥231.0 billion Exploration ¥13.7 billion ¥18.8 billion ¥10.7 billion ¥16.0 billion expenditure Investment for Growth for Other capital the 5 year period ¥3.7 billion ¥2.7 billion ¥2.8 billion ¥8.0 billion

expenditure ¥1.7 trillion Growth Strategies for Value Creation ¥488.4 billion ¥243.2 billion ¥180.8 billion ¥255.0 billion Total expenditure Total Expenditure in 4 years: ¥1167.4 billion (forecast)

* Outlook as of February 10, 2021

Progress in achieving the three business targets

FY2019/3, FY2019/12 and FY2020/12 Results FY 2021/12 Initiatives & Outlook (First, Second and Third Years of the Mediumterm Business Plan) (Fourth Year of the Medium-term Business Plan)

Ichthys LNG Achieved rapid and steady Continue stable production and ac- Project ramp-up; continued stable cumulate technical and project

production management knowledge and The Basis of our Value Creation experience Abadi LNG Preparations to commence Prepare to commence FEED in Sustainable Project FEED in progress progress Growth of Oil Abu Dhabi Continued development work Continue development work to in- Oil Fields to increase production capacity crease production capacity and Natural Gas E&P Activities Exploration Progress in Abu Dhabi, Iraq, Maintain progress in Abu Dhabi, Norway and Gulf of Mexico, Iraq, Norway and Gulf of Mexico, etc.; continued studies in the etc.; continue studies in the priority priority exploration areas and exploration areas and acquire new acquired new exploration exploration blocks blocks (Abu Dhabi, Australia and Norway) Performance and Financial Overview

Domestic Approx. 2.07 billion m3 of natu- Approx. 2.11 billion m3 of natural ral gas sold gas sales Development of Overseas Continued LNG/gas marketing Continue LNG/gas marketing for Global Gas Value for FID on Abadi LNG Project FID on Abadi LNG Project and ini- Chain Business and initiatives to create new tiatives to create new business for business for natural gas de- natural gas demand generation mand generation

Indonesia: Sarulla Geothermal Independent Promote geothermal power genera- Power Producer (IPP) Project continued operation business. Proactively enter wind tion at total rated capacity of approximately power generation business Reinforcement 330MW Promote renewable energy and car- of Renewable Joined a consortium for a fixed-bottom wind bon recycling Energy Initiatives project offshore Noshiro, Mitane and Oga in Aki- Complete fundamental research of ta Prefecture, Japan the methane synthesis technology; Continued fundamental research of methane proceed to next stage synthesis technology

* In addition to the initiatives & outlook listed in the table, INPEX will strengthen and make cleaner its upstream business and promote initiatives towards a net zero carbon society, its five business pillars, as described on pages 30 to 33.

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012_0219287912106.indd 35 2021/06/30 10:33:06 The Basis of our Value Creation

Sustainability

As a management foundation to fulfill our two social responsibilities of providing a stable supply of energy and responding to climate change, we will continue to take action in line with six material CSR issues of great importance to us and our stakeholders: governance, compliance, HSE (health, safety and environment), local communities, climate change response, and employees. As we do this, we will pursue sustainability and work to create value across the entire value chain.

Roles and Responsibilities of CSR Committee

We disclose our executive management’s approach to sustainability, and have the CSR Committee chaired by General Meeting of Shareholders the Representative Director, President & CEO in place to promote groupwide and systematic sustainability practic- Nomination and Compensation es. The CSR Committee members include the Represen- Advisory Committee

tative Directors, the head of the General Administration Audit & Board of Directors Supervisory Board Division, and the head of the Corporate Strategy & Plan- INPEX Advisory Committee ning Division (Vice-Chair of the CSR Committee). The Chairs of the Compliance Committee and the Corporate Management HSE Committee also attend the CSR Committee meet- Compliance Committee Committee ings to facilitate collaboration with their respective committees. We have also created a groupwide consultation system supported by the Climate Change Strategy Work- CSR Promotion Council ing Group and the CSR Promotion Council, a subdivision Information Security CSR Committee Committee Climate Change of the CSR Committee comprising working-level mem- INPEX Value Assurance Strategy Corporate HSE Committee System (IVAS) Committee Working Group bers from various divisions.

Identification of Material Issues and Prioritization Process

In April 2012, we identified five key issues among the cycle to achieve continuous improvement. In FY2017, seven core social responsibility subjects in ISO 26000 as we incorporated the perspectives of Sustainable Devel- Material Issues of importance for us and our stakehold- opment Goals (SDGs) into the existing Key Tasks, ers. In May 2015, we reexamined the Material Issues mapped the Key Tasks through a four-step prioritization considering factors such as impacts of business activi- process (1. Issue identification and gap analysis, 2. ties associated with the progress of our key projects and Stakeholder dialogues, 3. Issue prioritization, and 4. changes to stakeholder priorities. As a result, we rede- Management review), and reevaluated the Key Tasks. fined the Material Issues by adding the sixth issue, We will continue to review the Key Tasks on regular “Governance.” Furthermore, our actions that should be basis. prioritized for each Material Issue have been defined as Key Tasks, and have been incorporated into our PDCA* * PDCA Plan-Do-Check-Act

CSR Material Issues

Governance Compliance HSE Local Climate Change Employees Communities Matrix of Key Tasks INPEX Key Tasks

Area of priority Strengthen governance structure Assess and take measures to reduce Upgrade risk management system impact on local and indigenous Respect human right communities Comply with laws, prevent bribery and Contribute to local economies corruptions Promote renewable energy business Conduct Environmental and Social Develop natural gas as a cleaner source Impact Assessment (ESIA) in supply of energy

stakeholders chain Strengthen climate-related risk Prevent major incidents management Importance for our Secure occupational health and safety Develop personnel and enhance the Conserve biodiversity, manage water motivation of the workforce Importance for our business management resource appropriately Promote diversity (necessity/urgency of additional measures)

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Response to Novel Coronavirus Disease (COVID-19)

In view of the global spread of COVID-19, INPEX has endeavored to continue steady operation and ensure stable supply of energy. At the same time, it has implemented a range of measures to prevent infection in our crude oil and gas production operations around the world, prioritizing the health and safety of employees.

Country Response Measures

Introducing special rotation and shift with a period of quarantine, implementation of Growth Strategies for Value Creation Australia medical interviews and body temperature checks before coming on operating site (Ichthys LNG Project) Introducing various restrictions and requirements for the LNG tankers and other boats coming to terminal

Restricted access to worksites except for core operating personnel Japan Securing standby personnel in preparation for the emergence of COVID-19 infection

Infection monitoring measures, including medical screening and body temperature United States checks for personnel entering operating sites (Shale Oil Project) Establishment of procedures to respond and restore operations after in case of COVID-19 infection

Implementation of a range of measures to mitigate the risk of infection at our projects in Abu Dhabi, in accordance with the guidelines set forth by Abu Dhabi U.A.E. National Oil Company (ADNOC). These include mandatory confirmation of negative PCR test results prior to admittance to operating or other sites, as well as body temperature checks The Basis of our Value Creation INPEX assisted medical professionals and others who have dedicated themselves to the prevention of the further spread of COVID-19, and supported people in the local community who are experiencing difficulties. The following activities are included.

Country Response Measures Japan Provision of N95 masks to Japanese Red Cross Society and local governments

Donation of A$ 30,000 to Foodbank NT to support emergency food provision in the Northern Territory Australia Donation of A$ 100,000 to Menzies School of Health Research in the Northern Territory to support COVID-19 response activities Provision of masks to medical facilities and police agencies in Broome

Provision of COVID-19 information posters, chemical protection suits, medical masks, Performance and Financial Overview Indonesia and hand sanitizer to medical professionals in the Tanimbar Islands

Provision of medical equipment and personal protective equipment to medical Kazakhstan facilities in Nur-Sultan in collaboration with other foreign companies in the country

United States Donation through the Japan Business Association of Houston

Plant operators with face shields and masks at Donation to Foodbank NT in the Northern Provision of medical goods in the Tanimbar Naoetsu LNG Terminal, Japan Territory, Australia Islands, Indonesia

INPEX CORPORATION Annual Report 2020 37

013_0219287912106.indd 37 2021/06/30 10:41:54 Sustainability

Targets and Results of Material Issues

CSR Material Medium to Long-Term Key Tasks FY 2020 Results FY 2021 Targets Issues Initiatives and Directions

Continued to implement a PDCA cycle to evaluate the effective- Enhance of the corporate governance system through appropriate Improve of the effectiveness of ness of the Board of Directors, and had evaluation performed by a operation of the Board of Directors and continue to implement the Board of Directors, appropri- third-party evaluation body evaluation of the effectiveness of the Board of Directors. Continue ate information disclosure includ- Setting discussion items for responding to low crude oil price and the PDCA cycle ing dialogue with shareholders, climate change, aiming to effective discussion of the Board of Respond to the amendment of the Companies Act, the restructur- cooperation with stakeholders, Directors ing of the Tokyo Stock Exchange and the revision of Japan’s Cor- and continue to enhance of Held a roundtable meeting among the Directors for the exchange porate Governance Code corporate governance Strengthen of views, with participation of climate change experts Discuss matters relating to director nomination and compensation, Made steady progress in preparation for response to revision of with appropriate support and advice by the Nomination and Com- Strengthen the corporate gov- governance Japan’s Corporate Governance Code and the restructuring of the pensation Advisory Committee ernance structure, including en- structure Tokyo Stock Exchange, which are scheduled for 2021 Implement global expansion of the tax governance structure hancement of the supervisory Governance Discussed matters relating to director nomination and compensa- role of the Board of Directors tion, with appropriate support and advice by the Nomination and Expand the discussion on busi- Compensation Advisory Committee, and resolved the policy for ness strategies based on Vi- determining individual directors’ compensation approved by the sion 2040, the Medium-term Board of Directors Business Plan, and anticipated Enhanced company’s tax management system through the recruit- future business development, ment of tax specialists and monitor the progress made Promoted Business Continuity Management (BCM)*1 for earth- Promote corporate headquarters-based BCM activities for earthquake scenario activities and conducted training and education at quake scenarios, provide BCM education and training for employ- Upgrade risk corporate headquarters ees, and update corporate headquarters BCP*2 for highly virulent Implemented and operated a crisis response system under the infectious disease scenarios including measures to prevent the management Corporate Crisis Management Team for the novel coronavirus dis- spread of the novel coronavirus disease (COVID-19) system ease (COVID-19) Implement and operate a crisis response system under the Corpo- rate Crisis Management Team for the novel coronavirus disease (COVID-19)

Published the UK Modern Slavery Act Statement FY 2019 Publish the UK and Australia Modern Slavery Act Statement FY Appropriate responses to and Respect human Conducted human rights training for new recruits 2020 full compliance with the laws and rights Participated in the IPIECA human rights working group (ongoing) Continue human rights training for new employees regulations of the areas in which Strengthen human rights management we operate, anti-bribery and anti-corruption (ABC) laws, judicial Conducted various types of compliance training, including harass- Continue to provide information on compliance and conduct edu- /administrative sanctions, inter- Compliance ment prevention training for managerial employees cation and training programs (including harassment prevention national standards and ethics, Conducted ABC risk assessments at domestic offices in Japan training for non-managerial employees at domestic offices in and respect for human rights Comply with Launched and began operation of the INPEX Global Hotline Japan) laws, prevent Participated in the anti-corruption working group of the Global Maintain initiatives aimed at bolstering global compliance systems Strengthen global human Compact Network Japan (ongoing) (including continued operation of the INPEX Global Hotline, etc.) rights management structure bribery and Widely disseminate and strengthen the implementation of ABC Strengthen supply chain risk corruption regulations (including continued implementation of training and assessment and compliance due diligence, etc.) Continue to conduct ABC risk assessments at Japan and overseas offices Conduct Administered a supplier self-assessment questionnaire including Continue to administer a supplier self-assessment questionnaire in- human rights and ABC to major domestic suppliers and cluding human rights and anti-bribery and anti-corruption (ABC) to Environmental contractors major domestic suppliers and contractors and Social Continued risk assessment including human rights, ABC of major Continue risk assessment including human rights, anti-bribery and Impact domestic suppliers and contractors anti-corruption (ABC) of major domestic suppliers and contractors, Assessment Administered a survey on the status of operator initiatives for hu- and improve the methods used for risk assessment man rights, and ABC, in relation to non-operated projects Participate in the supply chain working group of the Global Com- (ESIA) in supply pact Network Japan chain

Enhanced the Corporate HSE Management System (established Enhance the Corporate HSEMS (improve consistency between Under our commitment to the and revised a total of 6 Corporate HSE Standards, supported the company regulations and HSEMS documents and complete stan- HSE Policy, top management, creation of HSE engagement plans regarding the headquarters in- dardization of HSE standards) managers and staff implement cluding non-operated projects, and established the Revised HSE Improve HSE assurance and governance (improve the consistency the process defined in the Cor- 3rd Phase Mid-term Plan [FY2016-2022]) and effectiveness of HSEMS through HSE reviews and risk-based porate HSE Management Improved HSE assurance and governance (participated in 6 HSE audits) System reviews and conducted 2 risk-based audits at overseas sites Provide HSE technical support and foster HSE leaders (continue to Think, act and promote safety remotely) secure HSE resource and promote more efficient acquisition of culture as “Safety Number One” Provided HSE technical support (implemented 11 technical support HSE competency through initiatives for comprehensive HSE train- on INPEX Values and aim to operations) ing and exercises online) achieve zero incidents and pre- Ingrained HSE risk management to prevent major incidents and di- Enhance process safety and asset integrity management (develop vent major incidents sasters (held 6 training sessions and workshops, etc., for enhance- a dashboard to promote visualization of management situation, Prevent major ment of HSE risk management for operated projects, prepared an enhance process safety and asset integrity management through Promote actions to achieve the incidents annual report on process safety leading indicators, assisted in the measurement of Tier 3 and Tier 4 leading indicators) Revised HSE 3rd Phase Mid- establishment of safety cases both domestically and overseas, con- Reinforce emergency and crisis response capability (increase com- term Plan (FY2016-2022) in- ducted HSEIA reviews, and conducted asset integrity management pany-wide security and crisis management capabilities by review- cluding following actions: and process safety assurance reviews of the domestic E&P busi- ing the functions of the Corporate Crisis Management Team from – Enhance effectiveness of the ness, domestic energy business, and Ichthys LNG Project) various perspectives including Crisis Management Team formation, Corporate HSE Management Reinforced emergency and crisis response capability (implementing application software and exercises program) System (HSEMS) countermeasures against COVID-19 using the Corporate Crisis – Improve HSE assurance and HSE Management Team as the secretariat, conducted emergency level governance by continuous im- 3 crisis response exercises two times based on the scenarios of a plementation of the risk man- serious accident at a business site of the domestic energy business agement-based audits and and a major earthquake striking directly beneath Tokyo metropoli- HSE reviews tan area, conducted functional training on 7 occasions, and revised – Fulfill HSE technical support by a security response plan for Abu Dhabi Office) utilizing HSE human resources and foster HSE leaders by con- Strengthened HSE management at worksites (conducted safety Strengthen HSE management at worksites (develop and execute tinuing to promote opportuni- document survey and HSE Forum, but did not carry out manage- an action plan for fostering HSE culture and HSE leadership based ties for acquiring HSE ment site visits because of travel restrictions in place due to the on the results of the HSE culture survey) competencies COVID-19 pandemic) Secure Reduce the number of incidents (provide incident information and – Develop HSE activities that in- Reduced the number of incidents (LTIF: 0.26 / TRIR: 2.24; complet- causes in a timely manner using the newly introduced incident re- corporate opinions from occupational ed online curriculum on life-saving rules and published HSE Flash porting system and prevent recurrence of similar incidents by mea- worksites and improve HSE health and and Learning from Incident [LFI] ) suring leading indicators such as implementation status of accident management based on the re- safety Improved health promotion and maintenance program (developed remedies) sults of the HSE culture survey health risk resisters for INPEX Standards and gathered information Strengthen health management (enhance initiatives for employee – Thoroughly prevent major inci- on COVID-19, issued an alert, and conducted survey led by the health improvement, occupational health and safety and infection dents by promoting Process health and safety management division of the Corporate Crisis control based on the INPEX Group Health Statement and Corpo- Safety management Management Team) rate Health Management Standard) – Reduce incidents using leading indicators Executed and reviewed a Corporate Environmental Management Execute and review Corporate Environmental Management Plan – Plan including initiatives for biodiversity conservation and water including initiatives for biodiversity conservation and water Reinforce emergency and crisis management management response capability Conservation of biodiversity Conservation of biodiversity – Reinforce GHG emissions control and environmental man- Updated a protected areas database of adjacent to domestic and Update the protected areas database of areas adjacent to domes- agement as well as promote overseas project sites tic and overseas project sites management of social impacts Implemented marine environmental impact assessments at domes- Implement marine environmental impact assessments at domestic – Implement initiatives based on tic projects projects the INPEX Group Health State- Conduct Participated in forestation and biodiversity conservation activities Implement measures for specific invasive alien plant species at do- ment and Corporate Health at domestic projects mestic projects Management Standard Environmental Planned a simple survey of ecosystem of peripheral areas of do- Participate in forestation and biodiversity conservation activities at and Social mestic project sites (Nagaoka) domestic projects Impact Implemented measures for specific invasive alien plant species at Conduct an ecosystem survey in peripheral areas of domestic proj- domestic projects ects (Nagaoka) Assessment Implemented survey on current situation of biodiversity at overseas Conduct surveys on current status of biodiversity at overseas (ESIA) in supply projects projects chain Conducted biodiversity monitoring at overseas projects Conduct biodiversity monitoring at overseas projects Created a report about our biodiversity conservation activities Publish report on INPEX’s biodiversity conservation activities Water management Consider establishment of policy on biodiversity conservation Conducted water stress assessments in project areas Water management Collected and analyzed data on water consumption in projects Update water stress assessments in project areas Comprehend water balance, as well as collect and analyze water consumption data of projects Prepare report on the Group’s water usage and water risks Consider establishment of policy on water risk management

38 INPEX CORPORATION Annual Report 2020

013_0219287912106.indd 38 2021/06/30 10:41:55 INPEX’s Vision and Value Creation Targets and Results of Material Issues

CSR Material Medium to Long-Term Key Tasks FY 2020 Results FY 2021 Targets Issues Initiatives and Directions

Japan Japan Contribute to regional develop- Provided information on operational status and safety manage- Maintain positive relationships with stakeholders through continu- ment and the solution of social ment of the Naoetsu LNG Terminal through community briefings ous dialogue, including appropriate response to inquiries from lo- issues through projects, respect- and public newsletters cal communities and publication of newsletters ing human rights and the cul- Local Assess and take Australia Australia tures and customs of the areas in which we operate Communities measures to Held more than 250 stakeholder engagement activities and provid- Maintain positive relationships with stakeholders and communities reduce impact ed more than 50 community updates through proactive and integrated engagement Received approximately 800 local operating area inquiries (of which Indonesia Comprehend community on local and 50 percent related to employment opportunities) Continue to implement environmental and social impact assess- needs and conduct measures indigenous Indonesia ment while maintaining positive relationships with stakeholders through engagement with stakeholders in the areas in communities Conducted an environmental and social impact assessment, which which we operate has been undertaken every year since 2018. In 2020, assessed the impacts on communities during construction and operation phase and likewise conducted impact assessment in regard to concern of local communities

Global Global Growth Strategies for Value Creation Invested approximately 2.2 billion yen in social contribution Continue investments for social contribution initiatives in response initiatives to the needs of the local community Australia Australia Supported more than 350 Larrakia individuals and facilities through Ensure the success of the Larrakia Ichthys LNG Foundation Trust the Larrakia Ichthys LNG Foundation Trust since its establishment Increase INPEX Australia’s direct employment of Aboriginal and Contribute to in 2018 Torres Strait Islander peoples to 36 people or three percent of em- Retained 25 Aboriginal and Torres Strait Islander employees includ- ployees by the end of 2021 local economies ing the Solid Pathways program participants Employ an average of 60 Aboriginal and Torres Strait Islander peo- Employed more than 100 Aboriginal and Torres Strait Islander peoples through our Ichthys LNG operations’ contractors each year ple through Ichthys LNG operations’ contractors from 2019 to 2021 INPEX and contractors engaged 8 Aboriginal and Torres Strait Is- Increase the number of Aboriginal and/or Torres Strait Islander ma- lander businesses for a total value of more than A$4 million jority owned businesses engaged by INPEX and its contracting partners by 50 percent with a total contract value between 2019 to 2021 being greater than A$ 1 million

Achieved stable and efficient production operations in the Ichthys Continue to achieve stable and efficient production operations at Strengthen governance systems LNG Project the Ichthys LNG Project and promote initiatives in the ar- Continued a stable supply of natural gas and increased supply vol- Maintain a stable supply of natural gas and increase supply volume eas of business strategy, risk and ume through the safe operation of gas fields, the Naoetsu LNG through the safe operation of gas fields, the Naoetsu LNG erminalT opportunity assessment, and Develop natural Terminal and the approximately 1,500 km long, high-pressure gas and the approximately 1,500-kilometer long, high-pressure gas emission management, so as to gas as a more pipeline network in Japan pipeline network in Japan contribute towards the realiza- environmentally Implemented proposal activities to promote natural gas utilization Engage in activities to promote natural gas utilization tion of the Paris Agreement goals on climate change friendly source Promoted construction operations for local smart energy projects Start commercial operation of local smart energy projects using using gas cogeneration facilities gas cogeneration facilities Climate of energy Implemented carbon neutral gas proposal activities in Japan Start sale of carbon neutral gas Implement initiatives aimed at Created a system for the inspection, data compilation and report- Continue to improve management of GHG emissions, including the realization of the net zero Change ing on methane dissipation from equipment and machinery at methane carbon society business sites in Japan Undertake continuous information disclosure in line with the Formulated guidelines for the assessment and management of cli- Announce the company’s Business Development Strategy, and set recommendations of the Task Force on Climate-related mate-related risks and opportunities goals for climate change The Basis of our Value Creation Strengthen Financial Disclosures (TCFD) climate-related Transformed the Climate Change Strategy Working Group into an Revise the company’s Corporate Position on Climate Change advisory body of the CSR Committee Formulate Guidelines for Transactions and Management of VCUs*3 risk Disclosed greenhouse gas emissions on an equity share basis Formulate Guidelines for Management of Climate Change Goals management Improved the company’s Carbon Disclosure Project (CDP) Climate Change score (from B to A-)

Ensured stable operation of photovoltaic power generation Ensure stable operation of photovoltaic power generation facilities facilities Ensure stable operation at the Sarulla Geothermal IPP Project in Ensured stable operation of the Sarulla Geothermal IPP Project in Indonesia Indonesia Drive forward existing geothermal power generation business in Continued environmental impact assessments and conducted flow Japan tests with all production and reinjection wells in the Oyasu region Pursue new geothermal power business opportunities in Japan and Promote in Akita Prefecture. Continued surveys on geothermal resources at overseas. Continue environmental impact assessments and flow renewable Amemasudake, Hokkaido tests with all production and reinjection wells in the Oyasu region energy business Conducted preparation work toward final investment decision (FID) in Akita Prefecture for the domestic wind power business Pursue onshore and offshore wind power generation business op- Continued R&D of technologies that contribute to building an portunities in Japan electricity-hydrogen-methane value chain Pursue new offshore wind power generation business opportunities in Japan and overseas Continue R&D of technologies that contribute to building an electricity-hydrogen-methane value chain

Global Global Develop a corporate culture that Continued promoting of INPEX Values (including Values Award, etc.) Continued promoting INPEX Values (including Values Award, facilitates self-initiative and Conducted an engagement survey group-wide promotion, etc.) a strong sense of values and Japan Japan purpose for a diverse workforce in accordance with INPEX Values

Continued facilitation of internal job posting Continued facilitation of internal job posting Performance and Financial Overview Continued providing career consultations for young corporate Continued providing career consultations for young corporate employees employees Continue the promotion of IN- PEX Values Continued interviewing with young technical employees for skill Initiate career consultations for senior employees, and continue mapping skill mapping interviews for young technical employees Develop an environment which Continue reducing overtime hours and further encourage employ- enables a diverse workforce to Reduced overtime hours and continued encouragement of the tak- demonstrate their talent ing of paid leave ees to take paid leave Develop Expanded business knowledge training through e-learning Eliminate core time from the flextime working system personnel and materials Introduce a new scheme for “internal side work” Employees Expanded “career design” training program Expanded work-from-home arrangements enhance the Implemented additional training for line managers Implement well-being workshops motivation of Converted some contract staff to regular employment Hold seminars on psychological safety the workforce Introduced a return-to-work scheme Introduce a training program for the next generation of leaders Introduced work-from-home arrangements Introduce online learning materials to enhance the English-lan- Began satellite office operation guage business skills of all employees Provided subordinate training seminars and remote-work focused Introduce team-building initiatives mental health awareness sessions Continue providing health-related seminars Provided health-related seminars on topics including smoking, Realize continued Health & Productivity certification dealing with back pain, stretching exercises to improve bodily Realize continued certification from the Certified Health & Produc- functions, etc. tivity Management Outstanding Organizations Recognition Selected for 2020 Health & Productivity certification Program Obtained certification in the large enterprise category of the 2020 Certified Health & Productivity Management Outstanding Organi- zations Recognition Program (White 500)

Global Global Implemented regular exchanging of views among diversity con- Provide opportunities for employees from overseas offices to gain tacts at global offices experience at other worksites Japan Japan Promote Continued training for managers of people with parental Continue measures based on our General Employer Action Plan to diversity responsibilities promote the active participation of women Continued LGBT awareness training Develop policies for same-sex partners and their children to enjoy Achieved Silver “Work with Pride 2020” certification the same treatment as the family members of other employees Held a chat-based social event for employees with impaired Implement unconscious bias training hearing

*1 Business Continuity Management The activities undertaken by a company to develop and maintain a business continuity framework and ensure overall preparedness by the company through education and training initiatives *2 Business Continuity Plan A proactive plan outlining the priority operations and steps to be taken in the event of a disaster to avoid or mitigate the risk of interruption to business activities *3 VCUs: Verified Carbon Units

INPEX CORPORATION Annual Report 2020 39

013_0219287912106.indd 39 2021/06/30 10:41:55 Featured Sustainability Content 1 Climate Change Response

MESSAGE FROM THE DIRECTOR IN CHARGE OF CLIMATE CHANGE RESPONSE In the “Business Development Strategy,” our corporate management policy towards a net-zero carbon society by 2050 issued in January 2021, we determined our climate change goals, in which net-zero in Scope 1+2 emissions by 2050 is the main pillar for contributing to the achievement of the Paris Agreement goals. Concurrently, we revised our “Corporate Position on Climate Change” to reflect these goals, and we will continue advancing our initiatives to disclose climate -related information in accordance with the TCFD Recommendations. Specifically, our Board of Directors seeks to maintain its oversight and expand its involvement in governance. When developing our business strategies, we assess our ability to respond to multiple climate change scenarios, including the IEA WEO Sustainable Development Scenario (SDS: scenario consistent with the Paris Agree- ment’s goals of keeping average global temperature rise to well below 2 degrees Celsius compared to preindustrial levels, and pursuing efforts to limit it to 1.5 degrees Celsius), to evaluate our business portfolio. Regarding risk and opportunity assessment, we have an annual assessment and management cycle where risks and opportunities are explored in detail. We then implement measures and work plans developed from that process. As for the management of GHG emissions, we will strive to manage the progress while advancing efforts to achieve established climate change goals. Facilitating CO2 absorption through forest conservation is one of the five pillars of achieving climate change goals. By supporting Indonesia’s Rimba Raya Biodiversity Re- serve REDD+ Project, INPEX came to an agreement with Infini- teEARTH in February 2021 on acquiring 5 million tons of carbon credits over 5 years starting in 2021. Kimihisa Kittaka Director, Senior Managing We will continue advancing our efforts to achieve climate Executive Officer, change goals. Corporate Strategy & Planning

Disclosure in line with TCFD Recommendations

The “Corporate Position on Climate Change” (issued in December 2015, last revised in January 2021) is available on our website*. INPEX’s information disclosure related to climate change is in line with the TCFD Recommendations. Please refer to our Sustainability Report 2021 for more details.

* https://www.inpex.co.jp/english/csr/climatechange/pdf/20210216.pdf

Overview of the TCFD Recommendations Relevant section

Describe the board’s oversight of climate-related risks and Governance Framework for Climate Change Governance 1 opportunities. Response Disclose the Message from the Director in Charge of Climate organization’s governance Describe management’s role in assessing and managing climate- Change response around climate-related 2 related risks and opportunities. Governance Framework for Climate Change risks and opportunities. Response Describe the climate-related risks and opportunities the Strategy Climate-related Risks and Opportunities 1 organization has identified over the short, medium and long term. Disclose the actual and potential impacts of Describe the impact of climate-related risks and opportunities on “Business Development Strategy - Towards a climate-related risks and 2 the organization’s businesses, strategy and financial planning. Net-Zero Carbon Society by 2050” opportunities on the The INPEX Low-Carbon Society Scenarios organization’s businesses, Describe the resilience of the organization’s strategy, taking into Assessment of Financial Impacts of Climate- strategy, and financial consideration different climate-related scenarios, including a 2°C 3 related Risks planning where such or lower scenario. information is material. Application of Internal Carbon Price Describe the organization’s processes for identifying and assessing Assessing and Managing Climate-related Risks Risk 1 climate-related risks. and Opportunities Management Describe the organization’s processes for managing climate- Assessing and Managing Climate-related Risks Disclose how the 2 related risks. and Opportunities organization identifies, assesses and manages Describe how processes for identifying, assessing, and managing climate-related risks. 3 climate-related risks are integrated into the organization’s overall Risk Management System risk management. Metrics and Disclose the metrics used by the organization to assess climate Managing the Environment and GHG Emissions 1 change-related risks and opportunities in line with its strategy and Climate Change Response and Directors’ targets risk management process. Compensation Disclose the metrics and Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 GHG ESG Performance Data: GHG Emission targets used to assess 2 emissions, and the related risks. Management (Goals Management) and manage relevant climate-related risks and Describe the targets used by the organization to manage climate Efforts in Setting and Achieving Climate Change opportunities where such change-related risks and opportunities and performance against 3 Goals information is material. targets.

Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_ClimateChange.pdf

40 INPEX CORPORATION Annual Report 2020

013_0219287912106.indd 40 2021/07/01 16:40:33 Climate Change Response INPEX’s Vision and Value Creation

Efforts in achieving climate change response goals

Specific countermeasures for achieving net-zero goals intensity (methane emissions / natural gas production) include promotion of Carbon Capture Utilization and at its current low level (about 0.1%), and zero routine Storage (CCUS), strengthening in renewable energy flaring. Our net carbon intensity in 2020 was 35kg- initiatives, promotion of CO2 absorption through for- CO2-e/boe, a reduction of 15% compared to the previ- est conservation, maintenance of methane emissions ous year.

INPEX Emissions *1 INPEX’s equity share emissions 2019 2020 *2 Net carbon intensity including offset *3 For details, please refer to our Sustainability

1 Report 2021 Growth Strategies for Value Creation Scope 1* (thousand tons- CO2e) 8,557 7,328 *4 Methane emissions intensity: calculated by methane emissions / natural gas production (%), using 1 Scope 2* (thousand tons- CO2e) 204 179 the method adopted by Oil and Gas Climate Initiative *5 The offsets include reduction contributions from 2 Net carbon intensity* (kg-CO2e/boe) 41 35 renewable energy as well as CO2 absorption through forest conservation. Contributions from renewable energy are calculated based on the 3 Scope 3* (thousand tons- CO2e) 82,626 77,305 “Guidelines for Measurement, Reporting and Verification of GHG Emission Reductions in JBIC’s GREEN” (the J-MRV Guidelines) Methane emissions intensity*4 (%) 0.10 0.07

Climate Change Response and Directors’ Compensation

Regarding INPEX’s climate change measures, we estab- charge. Bonuses for representative directors and other

lish qualitative goals in relation to risk management and directors are also calculated by comprehensively taking The Basis of our Value Creation information disclosure in accordance with the TCFD into considerations a range of factors such as ESG and Recommendations based on our “Medium-term Busi- HSE performance including climate change response, in ness Plan 2018-2022.” Level of achievements is evaluat- addition to performance in main business operations ed and is reflected in the bonus for the director in based on net income for the period.

Assessing and Managing Climate-related Risks and Opportunities

INPEX in principle assesses and manages climate-related The process of risk assessment adheres to procedures risks and opportunities in an annual cycle. The promotion in ISO31000 (2009), an international risk management of climate change measures across the Company is han- standard. We update external and internal factors, share dled by the Climate Change Strategy Group within the INPEX situations with the WG members. We then identify Corporate Strategy & Planning Unit of the Corporate risks and analyze their causes, preventive measures, miti-

Strategy & Planning Division. gation measures, and residual risks. The residual risks are Performance and Financial Overview Regarding climate-related risks, the “Climate Change assessed using the “Risk Assessment Matrix based on Strategy Working Group (WG),” composed of about 30 TCFD Recommendations” created by INPEX. members representing each of the divisions, implements Regarding climate-related opportunities, based on assessments and formulates preventive and mitigation the “Business Development Strategy”, we are working measures. across the whole Company through creation of new divi- Process of assessing and managing climate-related risks and opportunities sions such as the Hydrogen & CCUS Devel- opment Office. We will add persons in ecisionmaing ocument Tes uthorities charge of these divisions as WG members, and effectively, efficiently assess and man- Cororate Position esolution the Board age climate-related opportunities in IN- on Climate Change of irectors disclosed PEX’s corporate policy. eorting to the Board of Furthermore, WG evaluation results will INPEX’s irectors and Eecutive Committee be discussed in a CSR committee meeting Current Initiatives CEO roval disclosed PreCS Committee eeting as “INPEX’s Current Initiatives” and report- iscussion once annuall ed to Executive Committee and the Board Climate Change Strateg Preventive and oring Grou of Directors upon receiving approval from itigation easures once annuall the CEO.

Creating Proosals onitoring Preventive and Imlementing Preventive for Preventive itigation easures and itigation easures and itigation easures Climate Change Strategy Group, Climate Change Strategy Group, Divisions and Corporate Strategy & Corporate Strategy & Subsidiaries Planning Unit Planning Unit

INPEX CORPORATION Annual Report 2020 41

013_0219287912106.indd 41 2021/06/30 10:41:55 Featured Sustainability Content 2 Sustainability Initiatives in our Value Chain

Initiatives for providing a stable supply of energy

Enhancement of Resilience of INPEX Group operations Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Governance.pdf

We have a Business Continuity Plan (BCP) and response develop a Business Continuity Plan (BCP) to handle manual in place to maintain stable business operations. crisis that a pandemic could cause. In response to the Those were developed by incorporating the scenario pandemic of the novel coronavirus COVID-19, following planning of Tokyo inland earthquake which was a state of emergency declared by the Japanese govern- formulated by the Cabinet Office’s Central Disaster ment in April 2020, the aforementioned BCP and Management Council of the Japanese government. Our response manuals were activated to enable smooth im- policy on business continuity clearly expresses group- plementation of countermeasures such as working at wide values prioritizing the maintenance of a stable en- home. ergy supply while ensuring human safety and And, we have endeavored to continue steady opera- environmental preservation. The BCP also stipulates not tion and ensure stable supply of energy through a range only the establishment of provisional offices but also of measures to prevent infection in our crude oil and how our employees should react in the event of an gas production operations around the world including earthquake on a holiday or at night, and procedures for the INPEX operated Ichthys LNG Project in Australia, returning home from the office. the Minami-Nagaoka Gas Field and Naoetsu LNG We develop a response manual to prevent the Terminal in Japan, prioritizing the health and safety of spread of seasonal and novel influenza. We also employees.

Response to HSE (Health, Safety and Environment) Risks Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_HSE.pdf

With respect to HSE risks, we implement continuous implement risk countermeasures, the situation of risk management of occupational health, safety and envi- management is regularly reported to headquarters, and ronment in our business activities. We identify, analyze, is confirmed being at ALARP (As Low As Reasonably and evaluate risks that lead to major incidents, and the Practicable) levels, and is reported to the Executive top 10 risks, for each business location based on the Committee each quarter. In addition, reviews are regu- Risk Management Procedure established under the HSE larly conducted to assure the integrity of facilities during Management System. In parallel to formulate and development and operation.

Reduction of Injuries Prevention of Major Incidents We place the highest priority in preventing workplace injuries To prevent major incidents or disasters as typified by fires, explo- to all personnel working on our projects and engage in manag- sions, and large oil spills, we ensure proper due diligence ing occupational safety risks through the HSEMS implementa- throughout each phase of the project life cycle: exploration, de- tion. To drive HSE performance improvement, we monitor LTIF velopment, production, and abandonment. In order to handle and TRIR indicators to benchmark and move towards achieving hazardous substances such as flammable liquids, comprehensive the top quartile of IOGP member companies. Process Safety Management (PSM) is in place, a framework of systems and processes for robust design principles, good engineering, and sound operating and maintenance practices.

Supply Chain Management Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Compliance.pdf

As a company to manage projects across about 20 coun- prevent corruption, and respect the INPEX Group Human tries worldwide, INPEX recognizes its important role for Rights Policy. These requirements are built into our stan- the fair and impartial procurement and supply chain dard contracts. We manage continuous suppliers’ com- management. Our Details on Ethical Procurement Guide- mitment through regular surveys and monitoring. line expressly prohibits impediments to fair and impartial competition, abuse of a dominant bargaining position, Risk Assessment System and inappropriate granting or receipt of benefits, and re- We have been implementing supply chain risk assessments quires protection for the confidentiality of suppliers’ in- through a series of self-assessments for major suppliers. This formation and technologies. In addition to those survey questionnaires enables the Company to monitor the compliance systems of our suppliers and identify risks. fundamental policy on procurement, INPEX regulates its [Main survey items in the monitoring] executives and employees to comply with Code of Con- Human rights and labor Health and safety duct and CSR Principles for this purpose of fair and im- Fair business practice Environment partial procurement. We also require suppliers to comply Contribution to local communities with labor and environmental laws and regulations, Approach to business partners

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013_0219287912106.indd 42 2021/06/30 10:41:55 Sustainability Initiatives in our Value Chain INPEX’s Vision and Value Creation

Respect for Human Rights Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Compliance.pdf

INPEX supports international standards such as the In- a statement on the Company website to disclose the ternational Bill of Human Rights, the International Labor policies, systems, and measures for preventing slave Standards of the International Labor Organization (ILO), labor and human trafficking within the Company and the United Nations Guiding Principles on Business and throughout the supply chain. Human Rights, and the principles of the United Nations Global Compact. To demonstrate the stance on respect for human rights and fulfill the responsibilities, INPEX Human Rights Due Diligence in Operator Projects established and announced the INPEX Group Human For projects in which we serve as the operator, we have in- Rights Policy in May 2017. In accordance with that poli-

cluded human rights clauses in the terms and conditions of Growth Strategies for Value Creation cy, INPEX takes measures to address the human rights procurement contract. In particular, for the Ichthys LNG of all stakeholders including the supply chain in each Project in Australia, we have performed human rights due country and region where INPEX conducts business. diligence on contractors by including human rights-related questions in the tender document for the selection of new Our Human Rights Policy prohibits all forced labor and contractors or suppliers. child labor and confirms our respect for freedom of as- For projects in which we participate as a non-operator, sociation and protection of the right to organize. we have performed questionnaire survey of the operators To comply with the United Kingdom Modern Slavery of each project in 2020 to confirm the status of their human rights initiatives. Act 2015, each year since FY2016 INPEX has released

Local Communities Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_LocalCommunities.pdf

Trusted relationships with the communities in which we implement a variety of countermeasures. Through work- operate are fundamental to maintaining our social ing closely with our stakeholders and supporting the

license to operate. We build and maintain our relation- development of local human resources and businesses, The Basis of our Value Creation ships with our stakeholders through open and transpar- we help communities become vibrant, prosperous and ent engagement. resilient. The INPEX Group Human Rights Policy outlines our Engagement of local industry and people is essential commitment to recognize and respect the human rights to our business success. INPEX Australian Industry of people, including indigenous peoples, in our host Participation Policy sets out our strategy to provide full, communities. INPEX’s commitment to working with fair and reasonable opportunities for Australian busi- Aboriginal and Torres Strait Islander peoples in Australia nesses to participate in INPEX activities. is set out in and implemented through the INPEX As a global company, INPEX is committed to contrib- Reconciliation Action Plan. uting to the economic and social development of soci- To minimize the negative impact of our business op- ety through our business and to building sustainable erations on the local communities in which we operate, and prosperous communities. we conduct impact assessments in advance and

Work Style under COVID-19 Pandemic Performance and Financial Overview Sustainability Report https://www.inpex.co.jp/english/csr/pdf/INPEX_SR2021_E_Employees.pdf

In the face of the growing COVID-19 pandemic which In addition, INPEX is devoting time and effort to cre- began in early 2020, INPEX considered and implemented ate initiatives which assist the management of work, policies to protect the health and livelihood of employ- teams and health during the remote work environment. ees and their loved ones, and ensures continuation of Such initiatives include mental health awareness, semi- critical business operations while raising awareness nars for managing teams remotely, and a well-being among employees throughout the world via HSE alerts workshop. from the Tokyo HQ Crisis Management Team. For exam- ple, the Company regularly notified the revised rules and infection precautions to head office personnel, including modified seating arrangements and restricted use of Promoting Health Management meeting rooms. Additionally, the Company optimized In accordance with the INPEX Group Health Statement formulated in 2018, INPEX is promoting work-life balance the IT environment to enable flexible work and imple- and improving the health of its employees to create work- mented online training to improve the skills of employ- places where all the employees can work and demonstrate ees as they worked remotely. The Company also devised their full potential. The company has been recognized for comprehensive infection precautions at both domestic the 2021 Health & Productivity Stock Selection Program and the White 500 organization in the large enterprise cate- and overseas operation sites, such as shift rotations for gory of the Certified Health & Productivity Management essential operating personnel and quarantine treatment Organization Recognition Program. plans.

INPEX CORPORATION Annual Report 2020 43

013_0219287912106.indd 43 2021/06/30 10:41:55 Directors, Audit & Supervisory Board Members and Executive Officers (As of March 25, 2021)

Toshiaki Kitamura Takayuki Ueda Representative Director, Representative Director, Chairman President & CEO (1) Term of office as Director: Term of office as Director: 10 years and 9 months 2 years and 9 months Number of shares held: 50,900 Number of shares held: 17,200

April 1972 Joined Ministry of International Trade and Industry April 1980 Joined Ministry of International Trade and Industry (currently (currently Ministry of Economy, Trade and Industry) Ministry of Economy, Trade and Industry) July 2002 Director-General, Trade and Economic Cooperation Bureau, July 2010 Director-General, Minister’s Secretariat METI August 2011 Director-General, Manufacturing Industries Bureau, METI July 2003 Director-General, Manufacturing Industries Bureau, METI September 2012 Director-General, Trade Policy Bureau, METI June 2004 Director-General, Trade Policy Bureau, METI June 2013 Commissioner, Agency for Natural Resources and Energy July 2006 Vice-Minister for International Affairs, METI July 2015 Vice-Minister for International Affairs, METI November 2007 Advisor to Tokio Marine & Nichido Fire Insurance Co., Ltd. April 2017 Councilor (part-time), INPEX Corporation August 2009 Senior Executive Vice President, INPEX Corporation August 2017 Senior Executive Vice President June 2010 Representative Director, President & CEO June 2018 Representative Director, President & CEO (incumbent) June 2018 Representative Director, Chairman (incumbent)

Seiya Ito Takahiko Ikeda Shigeharu Yajima Director (1) Director (1) Director (1) Senior Executive Vice Senior Executive Vice Senior Managing President President Executive Officer Term of office as Director: Term of office as Director: Term of office as Director: 15 years 12 years and 6 months 1 year and 9 months Number of shares held: 32,300 Number of shares held: 38,200 Number of shares held: 18,600

April 1977 Joined Indonesia Petroleum, Ltd. (INPEX Corporation) April 1978 Joined Teikoku Oil Co., Ltd. April 1979 Joined Tomen Corporation (currently Toyota Tsusho June 2003 Director, General Manager of Corporate Planning & March 2005 Director and General Manager, Production, Domestic Corporation) Management Department Headquarters, Teikoku Oil Co., Ltd. February 2005 Joined INPEX Corporation November 2004 Director, General Manager of Corporate Planning & June 2007 Managing Director, President of Domestic Operation Division October 2008 General Manager of Gas Business Unit, Oil & Gas Business Management Department and Public Affairs Department and General Manager of Niigata District Department Division No. 1 September 2005 Director, Assistant Senior General Manager of Corporate October 2008 Director, Managing Executive Officer, Senior Vice President of June 2010 Executive Officer, Vice President of Oil & Gas Business Strategy & Administration Division, General Manager of Domestic Projects, INPEX Corporation Division No. 1, General Manager of Gas Business Unit Corporate Strategy & Planning Unit and Public Affairs Unit June 2014 Director, Managing Executive Officer, Senior Vice President of June 2014 Managing Executive Officer, Senior Vice President of Oil & April 2006 Director, Assistant Senior General Manager of Corporate Gas Supply & Infrastructure Division Gas Business Division No.1 Strategy & Administration Division, General Manager of April 2017 Director, Managing Executive Officer, Senior Vice President of April 2017 Managing Executive Officer, Senior Vice President of Global Corporate Strategy & Planning Unit Technical Headquarters Energy Marketing October 2008 Director, Managing Executive Officer, Senior Vice President of June 2018 Director, Senior Managing Executive Offcer, Senior Vice June 2019 Director, Senior Managing Executive Officer, Senior Vice Ichthys Project President of Technical Headquarters and in charge of HSE President, Global Energy Marketing (incumbent) June 2016 Director, Senior Managing Executive Officer, Senior Vice and Compliance President, Ichthys Project March 2020 Director, Senior Executive Vice President, Senior Vice June 2019 Director, Senior Executive Vice President, Senior Vice President of Technical Headquarters, HSE and Compliance President, Oceania Projects, Head of Overseas Projects March 2021 Director, Senior Executive Vice President, Senior Vice President (incumbent) of Technical Headquarters, Hydrogen & CCUS Development Office, HSE and Compliance (incumbent)

Kimihisa Kittaka Nobuharu Sase Daisuke Yamada Director (1) Director (1) Director (1) Senior Managing Managing Executive Managing Executive Executive Officer Officer Officer Term of office as Director: Term of office as Director: Term of office as Director: 4 years and 9 months 4 years and 9 months 1 year Number of shares held: 15,900 Number of shares held: 38,300 Number of shares held: 5,100

April 1981 Joined Ministry of International Trade and Industry (currently April 1981 Joined Indonesia Petroleum, Ltd. (INPEX Corporation) April 1984 Joined The Industrial Bank of Japan, Ltd. (currently Mizuho Ministry of Economy, Trade and Industry) October 2008 Vice President of General Administration Division, General Bank, Ltd.) October 2007 Director-General for Consumer Policy, METI Manager of Secretarial Unit April 2011 Executive Officer, General Manager of Industry Research July 2008 Director-General, Kyushu Bureau, METI June 2010 Executive Officer, Vice President of Oil & Gas Business Division, Mizuho Corporate Bank, Ltd. November 2010 Joined INPEX Corporation Division No.1, General Manager, Oil Marketing Unit April 2012 Executive Officer, General Manager of Industry Research June 2012 Executive Officer, Vice President of Corporate Strategy & June 2016 Director, Managing Executive Officer, Senior Vice President, Division, Mizuho Bank, Ltd. Planning Division, General Manager of Corporate Strategy & General Administration (incumbent) April 2013 Managing Executive Officer, Deputy in charge of Branch Planning Unit, and Corporate Communication Unit Banking Group, Mizuho Bank, Ltd. Managing Executive Officer June 2016 Director, Managing Executive Officer, Senior Vice President, in charge of Corporate Banking, Mizuho Corporate Bank, Ltd. Corporate Strategy & Planning July 2013 Managing Executive Officer in charge of Branch Banking June 2019 Director, Managing Executive Officer, Senior Vice President, Group, Mizuho Bank, Ltd. Corporate Strategy & Planning, Legal Affairs April 2014 Managing Executive Officer, Head of Corporate Banking Unit January 2021 Director, Senior Managing Executive Officer, Senior Vice (Large Corporations), Mizuho Financial Group, Inc. President, Corporate Strategy & Planning, Legal Affairs April 2018 Senior Managing Executive Officer in charge of Digital Innovation, (incumbent) Mizuho Financial Group, Inc. (resigned in March 2019) May 2019 Councilor, INPEX Corporation June 2019 Managing Executive Officer, Vice President, Finance & Accounting, General Manager, Finance Unit, Finance & Accounting Division March 2020 Director, Managing Executive Officer, Senior Vice President Finance & Accounting (incumbent)

Jun Yanai Norinao Iio Atsuko Nishimura

Director (Outside) (2) (4) Director (Outside) (2) (4) Director (Outside) (2) (4) Term of office as Director: Term of office as Director: Term of office as Director: 4 years and 9 months 3 years and 9 months 3 years and 9 months Number of shares held: — Number of shares held: — Number of shares held: —

April 1973 Joined Mitsubishi Corporation June 1973 Joined Mitsui & Co., Ltd. April 1979 Joined Ministry of Foreign Affairs April 2004 Senior Vice President, Senior Assistant to Group CEO, Energy April 2005 Managing Officer, Chief Operating Officer, Energy Business June 1997 Director, First Africa Division, Middle Eastern and African Business Group, Mitsubishi Corporation Unit, Mitsui & Co., Ltd. Affairs Bureau April 2005 Senior Vice President, Division COO, Petroleum Business April 2008 Executive Managing Officer, Chief Operating Officer, Europe August 1999 Counselor/Minister, Permanent Mission of Japan to the Division, Mitsubishi Corporation Middle East and Africa Unit, Mitsui & Co., Ltd. United Nations April 2008 Executive Vice President, Group COO, Energy Business October 2008 Senior Executive Managing Officer, Chief Operating Officer, June 2001 Minister, Embassy of Japan in Belgium Group, Mitsubishi Corporation Europe Middle East and Africa Unit, Mitsui & Co., Ltd. September 2004 Professor, School of Law, Tohoku University April 2011 Executive Vice President, Group CEO, Energy Business June 2009 Representative Director, Senior Executive Managing Officer, June 2008 Administrative Vice President, Japan Foundation Group, Mitsubishi Corporation Mitsui & Co., Ltd. April 2012 Senior Councilor, Japan Oil, Gas and Metals National April 2013 Senior Executive Vice President, Group CEO, Energy August 2009 Representative Director, Senior Executive Managing Officer, Corporation Business Group, Mitsubishi Corporation Chief Compliance Officer, Mitsui & Co., Ltd. April 2014 Ambassador Extraordinary and Plenipotentiary to the Grand June 2013 Member of the Board, Senior Executive Vice President, April 2010 Representative Director, Senior Executive Managing Officer, Duchy of Luxembourg Group CEO, Energy Business Group, Mitsubishi Corporation Mitsui & Co., Ltd. July 2016 Ambassador Extraordinary and Plenipotentiary in charge of April 2014 Member of the Board, Senior Executive Vice President, April 2011 Director, Mitsui & Co., Ltd. Women, Human Rights and Humanitarian Affairs Group CEO and CCO, Energy Business Group, Mitsubishi June 2011 Counselor, Mitsui & Co., Ltd. June 2017 Director (Outside), INPEX Corporation (incumbent) Corporation June 2017 Director (Outside), INPEX Corporation (incumbent) June 2016 Corporate Advisor, Mitsubishi Corporation (incumbent) June 2016 Director (Outside), INPEX Corporation (incumbent) (1) Concurrently holds the position of executive officer (2) Outside directors as defined in Article 2, Item 15, of the Companies Act (3) Outside Audit & Supervisory Board members as defined in Article 2, Item 16, of the Companies Act (4) Independent directors/auditors as defined in Article 436, Item 2, Sub-Item 1, of the Securities Listings Regulations for the okyoT Stock Exchange

44 INPEX CORPORATION Annual Report 2020

013_0219287912106.indd 44 2021/06/30 10:41:56 INPEX’s Vision and Value Creation

Executive Officers (32 individuals)

Yasushi Kimura Kiyoshi Ogino President & CEO Takayuki Ueda Senior Senior Vice President, Oceania Projects (2) (4) (2) (4) Executive Seiya Ito Director (Outside) Director (Outside) Vice Head of Overseas Projects Term of office as Director: Term of office as Director: President Senior Vice President, Technical Headquarters 1 year and 9 months 1 year and 9 months Takahiko Ikeda Hydrogen & CCUS Number of shares held: — Number of shares held: — Development Office HSE and Compliance Senior Vice President, Global Joined Nippon Oil Company, Ltd. Joined Japan Petroleum Exploration Co., Ltd. (JAPEX) Senior April 1970 April 1977 Shigeharu Yajima Energy Marketing June 2002 Director, Nippon Mitsubishi Oil Corporation June 2009 Executive Officer, Deputy Senior Vice President of Managing June 2007 Managing Director & Executive Officer, Nippon Oil Corporation Development Division, JAPEX Executive Senior Vice President, Corporate April 2010 Member of the Board, JX Holdings, Inc. (part-time) April 2010 Executive Officer, Senior Vice President of Development Officer Kimihisa Kittaka Strategy & Planning, Legal Affairs July 2010 Representative Director, President, President and Chief Division, JAPEX Executive Officer, JX Nippon Oil & Energy Corporation June 2010 Managing Executive Officer, JAPEX Senior Vice President, Asia June 2012 Representative Director, Chairman of the Board, JX Holdings, Inc. June 2011 Managing Director & Executive Officer, JAPEX Kenji Kawano Projects June 2012 Representative Director, Chairman of the Board, JX Nippon June 2014 Senior Managing Director & Executive Officer, JAPEX Oil & Energy Corporation June 2015 Executive Vice President and Executive Officer, JAPEX Managing Nobuharu Sase Senior Vice President, General April 2017 Representative Director, Chairman of the Board, JXTG June 2017 Advisor, JAPEX (incumbent) Executive Administration Holdings, Inc. Director (Outside), INPEX Corporation (incumbent) Growth Strategies for Value Creation June 2019 Officer Senior Vice President, Finance & June 2018 Senior Executive Adviser, JXTG Holdings, Inc. Daisuke Yamada Accounting June 2019 Director (Outside), INPEX Corporation (incumbent) June 2019 Senior Corporate Advisor, JXTG Holdings, Inc. Senior Vice President, Abu June 2020 Senior Corporate Advisor, ENEOS Holdings, Inc. (incumbent) Hiroshi Fujii Dhabi Projects Senior Vice President, Domestic Exploration & Production Kimiya Hirayama General Manager, Drilling Unit Tomoo Nishikawa Noboru Himata Domestic Exploration & Production Division Senior Vice President, Logistics Audit & Supervisory Takashi Kubo & IMT (2) (4) Director (Outside) Board Member Strategic Projects Office Atsushi Sakamoto General Manager, Strategic Term of office as Director: Term of office as Full-time Projects Office 1 year Audit & Supervisory Board Number of shares held: — Member: 1 year and 9 months Senior Vice President, Renewable Energy & New Number of shares held: 18,300 Yoshiro Ishii Business Hydrogen & CCUS April 1972 Joined the Ministry of Construction (currently the Ministry of April 1980 Joined The Industrial Bank of Japan, Ltd. (currently Mizuho Development Office (Deputy) Land, Infrastructure, Transport and Tourism) Bank, Ltd.) April 1977 Attorney at Law admitted to practice in Japan; joined Anderson June 2003 Joined INPEX Corporation Senior Vice President, New Mori & Rabinowitz (currently Anderson Mori & Tomotsune), and June 2007 Executive Officer, in charge of accounting, INPEX Toshiaki Takimoto Ventures & Global Exploration later served as Partner Corporation June 1979 Completed a Master of Laws (LL.M.) at Harvard Law School October 2008 Executive Officer, Vice President of Finance & Accounting, Senior Vice President, Americas August 1995 Partner, Komatsu, Koma & Nishikawa (currently Asahi Law General Manager of Finance Unit Nobusuke Shimada Projects Offices) June 2018 Managing Executive Officer, Vice President, Finance & October 1996 Member of House of Representatives (for one term, Accounting, General Manager of Finance Unit Vice President, Oceania Projects Kanagawa 3rd district) June 2019 Audit & Supervisory Board Member (full-time) (incumbent) Hitoshi Okawa General Manager, Perth Office October 2002 Managing Partner, Sidley Austin Nishikawa Foreign Law Joint President Director, Australia Enterprise Senior Vice President, Domestic November 2006 Auditor-Secretary, Tohoku University Kazuyoshi Miura Energy Supply & Marketing The Basis of our Value Creation April 2008 Visiting Professor, Tohoku University January 2020 Partner, Sidley Austin Nishikawa Foreign Law Joint Enterprise Senior Vice President, Eurasia, March 2020 Director (Outside), INPEX Corporation (incumbent) Yuzo Sengoku Middle East & Africa Projects Executive Vice President, Asia Projects Officer Hideki Kurimura Vice President, Technical Headquarters Yosuke Happo Vice President, Logistics & IMT Vice President, Domestic Energy Supply & Marketing Hideyuki Toyama Shinya Miyake Koichi Ogino General Manager, Gas (Shinya Inoue) Supplying Unit Domestic Energy Supply & Audit & Supervisory Board Audit & Supervisory Board Marketing Division (3) (4) (3) (4) Member (Outside) Member (Outside) Vice President, Asia Projects Akihiro Watanabe General Manager, Jakarta Office Term of office as Full-time Term of office as Full-time President Director Indonesia Audit & Supervisory Board Audit & Supervisory Board Vice President, Abu Dhabi Member: 5 years and 9 months Member: 1 year and 9 months Projects Number of shares held: — Number of shares held: — Mitsuo Tamura General Manager, Planning & Coordination Unit April 1975 Joined Ministry of Finance April 1987 Joined Export-Import Bank of Japan (currently Japan Bank for Abu Dhabi Projects Division July 2001 Director-General of Sapporo Regional Taxation Bureau, International Cooperation) Vice President, Corporate National Tax Agency (NTA) October 2012 Senior Advisor for Global Environmental Affairs, Corporate Strategy & Planning July 2003 Executive Secretary of the Administration Office, Cabinet Group, Japan Bank for International Cooperation (in charge Legislation Bureau (CLB) of global environmental issues) Munehiro Hosono General Manager, Corporate July 2005 Director-General of the Fourth Department, CLB November 2013 Director General, Nuclear & Renewable Energy Finance Communications Unit Department, Energy, Natural Resources and Environment Corporate Strategy & Planning October 2006 Director-General of the Third Department, CLB Performance and Financial Overview November 2012 Advisor, Aioi Nissay Dowa Insurance Co., Ltd. Finance Group, Japan Bank for International Cooperation Division July 2014 Earned a Doctor of Social Science January 2013 Registered as attorney-at-law (incumbent) Vice President, Finance & July 2015 Director General, New Energy & Power Finance Department June 2015 Audit & Supervisory Board Member (full-time) (Outside), Accounting INPEX Corporation (incumbent) I, Infrastructure and Environment Finance Group, Japan Bank for International Cooperation Akio Kawamura General Manager, Accounting September 2016 Executive Managing Director, Japan Institute for Overseas Unit 1 Investment Finance & Accounting Division June 2017 Regional Executive Officer, Regional Head for the Americas, Japan Bank for International Cooperation (stationed in New Yukiyo Ikeda Vice President, Corporate York) Strategy & Planning June 2019 Audit & Supervisory Board Member (full-time) (Outside), Vice President, Global Energy INPEX Corporation (incumbent) Marketing General Manager, Oil Marketing Hiroshi Kato Unit Global Energy Marketing Division Mitsuru Akiyoshi Hiroko Kiba Shinichi Takada Vice President, Oceania Projects (Hiroko Yoda) Vice President Ichthys Phase 2 Audit & Supervisory Board Audit & Supervisory Board Vice President, Domestic Exploration & Production Member (Outside) (3) (4) Member (Outside) (3) (4) General Manager, Exploration & Hiromi Sugiyama Exploitation Unit Term of office as Audit & Term of office as Audit & Domestic Exploration & Supervisory Board Member: Supervisory Board Member: Production Division 1 year and 9 months 1 year and 9 months Shoichi Kaganoi General Manager, Hydrogen & Number of shares held: — Number of shares held: — CCUS Development Office Vice President, Oceania Projects April 1978 Joined Marubeni Corporation April 1987 Joined Tokyo Broadcasting System, Inc. (currently Tokyo Deputy General Manager, Perth April 2007 Executive Officer, General Manager of Finance Department, Broadcasting System Television, Inc.) Tetsuhiro Murayama Marubeni Corporation April 2001 Part-time Lecturer, Faculty of Education, Chiba University Office Senior Vice President Corporate April 2009 Managing Executive Officer, Marubeni Corporation January 2007 Member of the Council for Regulatory Reform (PMO) June 2010 Representative Director, Managing Executive Officer, July 2007 Member of the Ministry of Economy, Trade and Industry’s Marubeni Corporation Advisory Committee for Natural Resources and Energy Wataru Nojiri General Manager, HSE Unit April 2012 Representative Director, Senior Managing Executive Officer, (incumbent) Marubeni Corporation February 2008 Member of the Education Rebuilding Council (PMO) April 2014 Representative Director, Senior Executive Vice President, March 2009 Member of the Ministry of Land, Infrastructure, Transport and Marubeni Corporation Tourism’s Council for Transport Policy (incumbent) April 2018 Director, Senior Consultant, Marubeni Corporation April 2013 Visiting Professor, Chiba University (incumbent) June 2018 Consultant, Marubeni Corporation January 2016 Police advisor for the Japan Coast Guard (incumbent) April 2019 Representative Director and President, MG Leasing November 2017 Member of the Ministry of Health, Labour and Welfare’s Corporation (currently Mizuho Marubeni Leasing Medical Ethics Council (incumbent) Corporation) (incumbent) February 2019 Member of the Ministry of Education, Culture, Sports, June 2019 Audit & Supervisory Board Member (Outside), INPEX Science and Technology’s Central Council of Education Corporation (incumbent) (incumbent) June 2019 Audit & Supervisory Board Member (Outside), INPEX Corporation (incumbent)

INPEX CORPORATION Annual Report 2020 45

013_0219287912106.indd 45 2021/06/30 10:41:57 Outside Director and Outside Audit & Supervisory Board Member Roundtable Discussion

Yasushi Kimura Hiroko Kiba Norinao Iio Audit & Supervisory Board Director (Outside) Director (Outside) Member (Outside)

INPEX has evaluated the effectiveness of its Board of Directors on an ongoing basis since 2015, working to enhance the Board’s performance by responding to the issues identified in the process. In January 2021, INPEX announced proactive initiatives aimed at the realization of the Company’s Business Development Strategy - Towards a Net Zero Carbon Society by 2050. Based on these developments, we held a roundtable discussion on topics including the characteristics and challenges of INPEX’s governance, as well as the Business Development Strategy and other matters. The roundtable discussion was moderated by Nobuharu Sase, Director, Managing Executive Officer and Senior Vice President, General Administration.

Topic No. 1: Future Challenges Regarding the Effectiveness of the INPEX Board of Directors

–––– Mr. Norinao Iio and Mr. Yasushi Kimura effectiveness of the Board of Directors, Hiroko Kiba: As part of my auditing re- have served as Outside Directors of INPEX and is there anything in particular that you sponsibilities, I meet with Directors to dis- for four and two years, respectively. Ms. yourself have noticed? cuss the Company’s business operations. Hiroko Kiba has served as an Outside I have found that these meetings are very Audit & Supervisory Board Member of Norinao Iio: The role of Outside Directors useful to further my understanding of INPEX for two years. What are your im- and Outside Audit & Supervisory Board INPEX. When the Company’s website was pressions of INPEX’s Board of Directors? Members is to adequately address and dis- updated, we asked the Company to share cuss the company’s broad strategies, and information as quickly as possible. The Norinao Iio: INPEX’s Board of Directors then entrust matters of implementation to Company responded very promptly. I be- consists of eight Directors and six Outside the company’s executives. As I see it, Out- lieve Outside Directors and Outside Audit Directors. Four out of five Outside Audit & side Directors should not be too involved & Supervisory Board Members must strive Supervisory Board Members are outside in executive matters. to deepen their understanding of the members, so, as I see it, there is a good Having said that, Outside Directors and Company. balance between internal and outside Outside Audit & Supervisory Board Mem- members. I feel that ensuring diversity in bers rely on information provided by the –––– Mr. Iio has been an Outside Director this way makes it possible to engage in di- executives to make informed judgements. at INPEX for longer than others. Have you alogue incorporating a wide range of Particularly in a negative turn of events, in- noticed any changes over this four-year perspectives. formation needs to be provided in a timely period? manner. Yasushi Kimura: In terms of the planning All the Directors and Audit & Superviso- Norinao Iio: I have definitely noticed an and execution of board meetings, it is ry Board Members, regardless of internal improvement in terms of the diversity of evident that both the Chair and the secre- or outside, want the company to do well, the Board over the last four years, and tariat work hard to ensure the smooth flow so I believe it is important to continue fos- I feel that this has given the Board’s discus- of discussion and maintain the right atmo- tering a solid relationship based on mutual sions greater depth. I also feel that Audit & sphere. This enables board members to trust. Supervisory Board Members have come to offer views based on their own individual address the Board more frequently. On the perspectives and experiences, which leads Yasushi Kimura: I am strongly aware of the whole, Board discussions have become to constructive dialogue. division of responsibility between Outside more compelling. Directors and executives. Hiroko Kiba: I feel that INPEX board mem- Another point is that taking risks is a bers are able to freely express their views –––– Mr. Kimura, is there anything that you core aspect of business management. To from their own individual perspectives, have noticed, based on your experience make up for the (inevitable) difference in the which allows for open and frank exchanges as an energy company executive and as quantity and quality of information available overall. There are times when discussions an Outside Director and Chairman of the to them, Outside Directors and Outside Au- become heated and extend beyond the Board of another listed company? dit & Supervisory Board Members must be scheduled time. firm with their questioning and encourage Yasushi Kimura: Every Board of Directors INPEX also deserves praise for being executives to take risks when necessary. It is carries the legacy of the company in ques- very receptive to the views and requests of important to have the right balance be- tion, so one cannot compare and rank the Outside Directors and Outside Audit & Su- tween mutual respect and detachment in merits of companies in this regard. From pervisory Board Members and responding the relationship between internal and out- this perspective, I view INPEX as being quickly. side members. Rather than being polarized a sound company with a long history. in their approach to issues, they should re- INPEX has numerous positive attributes –––– Are there any issues that need to be member that they are all working together and should stand confident. addressed in order to further enhance the to create a better company.

46 INPEX CORPORATION Annual Report 2020

013_0219287912106.indd 46 2021/06/30 10:41:58 Over the past year or two, the COVID-19 hope that such opportunities will be actively new Outside Directors and Outside Audit pandemic has caused restrictions on social pursued once the pandemic is brought & Supervisory Board Members. I am sure INPEX’s Vision and Value Creation events and gatherings. Formal settings such under control. that events of this type, including social as meetings of the Board of Directors are of events, will be held again once the pan- course the main channel of communication, –––– Prior to the spread of COVID-19, the demic subsides. but other forms of communication can help Company did organize events such as to strengthen mutual understanding, and I tours of INPEX production facilities for

Topic No. 2: Business Development Strategy - Towards a Net Zero Carbon Society by 2050

–––– Please share your views on INPEX’s areas. Rather than being too focused on young people to work at INPEX with fore- Business Development Strategy - Towards one particular area, it is important to adopt sight and enthusiasm. a Net Zero Carbon Society by 2050, which a framework that allows the Company to do was announced in late January 2021. various different things. –––– From your perspective, Ms. Kiba, would you say there are some areas Norinao Iio: Looking at social trends, I feel Hiroko Kiba: I have been involved in work where the Company has not done enough that the challenges surrounding ESG are relating to the energy sector for nearly 20 or needs to do more to enhance its social becoming increasingly significant, and this years. Reporting on energy infrastructure standing and promote itself externally? applies to INPEX too. As such, it is ever facilities has been a major part of my ca- Growth Strategies for Value Creation more important for Outside Directors and reer, and I have likely donned a safety hel- Hiroko Kiba: Firstly, with regard to talent Outside Audit & Supervisory Board Mem- met on more occasions than any other recruitment, I believe that it is very import- bers, who possess diverse and specialized female reporter in Japan. ant to spread awareness of what makes knowledge and expertise, to offer counsel What makes INPEX so appealing is that INPEX such a special company. I recognize on how the company can restructure its this is a company that has been entrusted that INPEX does not engage in a whole lot business portfolio and develop new busi- with an important social mission. For ex- of PR activities targeting the general pub- ness areas. ample, INPEX helps enhance Japan’s ener- lic, as a company mainly involved in busi- Looking 20~30 years ahead, INPEX can- gy security by improving the country’s ness-to-business (B2B) transactions. not afford to be burdened with stranded independent development ratio (of oil and Nevertheless, INPEX still needs to secure assets. In this regard, now is a very import- natural gas). It is clear that INPEX, which outstanding human resources. Taking into ant time. More specifically, with production has for many years run its own production account the new business areas that the at the Ichthys LNG Project proceeding sites and executed sound management, is Company will be moving into, there is smoothly, development of the Abadi LNG now entering an important transitional pe- a real need to communicate the potential Project also going well and an overall shift riod in which it will have to consider how it of INPEX’s businesses. I have the impres- to gas underway, this is the right time to needs to change. sion that INPEX’s public relations are some- take proactive measures to develop car- On this point, I have shared my views what conservative. One readily accessible bon-neutral LNG through Carbon dioxide on several occasions during Board meet- tool for remedying this situation would be Capture, Utilization and Storage (CCUS) ings. I feel that in changing its Japanese to make effective use of the Company’s and other means. From this standpoint, it corporate name to INPEX, the Company website to spread awareness of what would seem sensible to actively promote has made a timely and appropriate deci- makes INPEX special. I believe the Compa- The Basis of our Value Creation new business development in line with sion. When seeking to move forward, it is ny needs to pay more attention to imple- INPEX’s strategy for the future. very important to clarify what needs to menting PR that connects with external change and what does not. In terms of stakeholders. Yasushi Kimura: Over the past century, hu- change, I hope the Company will commit manity has enjoyed prosperity and well-be- to implementing measures that enable ing from (the exploitation of) petroleum, but the negative aspects of fossil fuels, such as the volume of CO2 emissions, have now come to light. It is undisputed that people will continue using energy in the future, and therefore the negative aspects must be addressed. We are entering a new era of competition, in which we need to consider who will be providing carbon-neutral energy and what it will be used for. Ultimately, energy choices will be made not by energy suppliers but by consumers. INPEX will need to

offer a variety of energy supply options and Performance and Financial Overview see which are accepted by consumers and the wider public. At the current stage, it is vital to expand into various new business

Topic No. 3: INPEX’s Response to COVID-19

–––– I would like to hear how you all feel Yasushi Kimura: All companies have been increasingly important for senior manage- about the measures that INPEX has taken affected by COVID-19 to at least some ex- ment to disseminate messages that convey in response to the COVID-19 epidemic. tent. INPEX has mounted various strategies their vision, approach and concern for the and countermeasures, including adjusting well-being of employees. Norinao Iio: I feel that some INPEX em- operational systems both in Japan and ployees may be feeling some anxiety around the world. Overall, one can say –––– Thank you all very much for providing about the major changes that are taking INPEX has responded very well. us with your valuable insights and opin- place with the pandemic and the Compa- I feel that, in a crisis, it is important for a ions today. Keeping in mind the points ny’s strategy of developing new business company to go back to its roots, and for that you have raised, we will be striving to areas as the world is turning away from fos- top management to take the lead in further enhance the effectiveness of the sil fuels. spreading awareness among internal and Board of Directors, while making every ef- It is precisely during times like these external stakeholders on where the com- fort to implement measures to help us re- that senior management needs to passion- pany stands. alize our Business Development Strategy - ately communicate the company’s philoso- Towards a Net Zero Carbon Society by phy to employees. Familiarizing all Hiroko Kiba: The spread of COVID-19 has 2050. employees with the company’s goals and led to changes in working arrangements objectives can be a key factor in helping and the emotional and psychological a company overcome challenging times. well-being of employees is a point of concern. I believe that it is becoming

INPEX CORPORATION Annual Report 2020 47

013_0219287912106.indd 47 2021/06/30 10:41:58 Corporate Governance (As of March 25, 2021)

To achieve sustainable growth and increase corporate value over the medium to long term, the Compa- ny fulfills its social responsibilities in cooperation with its shareholders and other stakeholders and works to enhance its corporate governance for the purpose of conducting transparent, fair, timely and decisive decision making.

Overview of the Corporate Governance Structure

INPEX has adopted an Audit & Supervisory Board Member Supervisory Board members are also appointed from external organizational structure, under which Audit & Supervisory sources. In addition to putting in place an Audit & Supervisory Board members audit the execution of operations, which are Board, INPEX has set up the Audit & Supervisory Board Mem- in turn carried out by directors well versed in their field. In ad- bers’ Office and deployed dedicated staff and is reinforcing dition, the Company has introduced an Executive Officer Sys- collaboration between Audit & Supervisory Board members tem to pursue management with agility and efficiency. INPEX and the Audit Unit, as well as independent auditors. frequently engages in negotiations with the governments of oil-producing countries and overseas oil companies. This nec- Overview of the Corporate Governance Structure essarily requires internal directors and executive officers who Company with Audit & Supervisory Board Organizational structure have knowledge, expertise and international experience relat- Members ing to the Company’s business and both a sound knowledge Number of directors as stipulated by the Articles of Incorporation...... up to 16 of the Company and their particular field of expertise. Internal Directors Number of directors directors, in principle, hold the concurrent position of execu- (number of outside directors)...... 14 (6) tive officers. By adopting this concurrent organizational struc- Term of office...... 1 year ture, the Company’s Board of Directors is better placed to Number of Audit & Supervisory Board members as stipulated by the Articles of execute operations in an efficient manner. At the same time, Incorporation...... up to 5 this structure helps to ensure effective operating oversight. Audit & Supervisory Number of Audit & Supervisory Board Board members members (number of outside Audit & In addition to enhancing the transparency of management Supervisory Board members)...... 5 (4) and bolstering the ability of the Board of Directors to carry Term of office...... 4 years out its supervisory function, INPEX has appointed six of its Number of independent 10 (6 outside directors, 4 outside Audit & 14-member Board of Directors from outside the Company. directors and auditors Supervisory Board members) Through this initiative, steps have been taken to ensure that Rights plan and other measures to protect None management issues are considered and deliberated with against a takeover a greater degree of objectivity from an independent stand- Issuance of a Class A Stock to the Minister of point. Moreover, four of the Company’s five Audit & Other Economy, Trade and Industry

Corporate Governance Framework

General Meeting of Shareholders

Appont Appont Appont Copenaton lt etup Copenaton lt etup Nomination and Compensation Report Advisory Committee Aut Audit & Supervisory PropoalAeReport Board of Directors Board (Member) INPEX Advisory Committee Coornate Coornate Report 6 Outside Directors Compliance Committee Audit & Supervisory Board Members’ Office Aut Appont Coornate Report upere Aountn aut une Operaton Independent te Coornate Executive Appont Auditors Committee CSR Committee upere Aountn aut President & CEO Audit Unit Corporate HSE Committee Report Coornate Information Security Committee Report Executive Officers INPEX Value Assurance System Committee Divisions and Subsidiaries Internal aut

Directors and the Board of Directors in the Company’s global operating environment in a timely The responsibilities of the Board of Directors shall be to fully exer- manner, this initiative helps to further clarify management cise its supervisory function, secure fairness and transparency in responsibilities. management, and ensure sustainable growth and increase corporate value over the medium to long term through implementation Executive Committee and Executive Officer of effective corporate governance, with recognition of its fiduciary responsibility to shareholders. System The Company’s Board of Directors comprises 14 members, six From the perspective of increasing the speed of decision making of whom are outside directors. In addition to a monthly meeting, related to the execution of business, we have established an Ex- the Board of Directors meets as necessary to discuss and deter- ecutive Committee. Meetings are held weekly and as necessary. mine matters concerning management strategy and important At the Executive Committee, flexible decision making is conduct- business execution, and to supervise the execution of duties by ed for resolutions not affiliated with the Board of Directors, and directors. The term of office for directors is set at one year. In ad- deliberation is held to contribute to decision making by the Board dition to enhancing the ability of directors to respond to changes of Directors.

48 INPEX CORPORATION Annual Report 2020

013_0219287912106.indd 48 2021/06/30 10:41:58 INPEX’s Vision and Value Creation

We implemented an Executive Officer System to respond ac- Targets and Results of Indices Relating to Performance- curately and quickly to a rapidly changing management environ- Based Compensation in FY2020 ment and the expansion of our business activities. The term of office for executive officers is set to one year, the same as for Targets Results directors. The forecasts announced by Results with regard to key indices re- the Company for key indices lating to performance-based compen- Formulation of Corporate Governance relating to performance-based sation in FY2020 are as follows: compensation in FY2020 were Key management index Guidelines a net income attributable to Net loss attributable to owners of The mission of the Company is to contribute to the creation of owners of parent of ¥145 billion parent ¥(111,699) million a brighter future for society through our efforts to develop, pro- and a net production volume Key results of business operations of 608 thousand barrels of oil Net production volume (BOE) duce and deliver energy in a sustainable way. Through our busi- equivalent (BOE) per day. 573 thousand barrels per day ness, we aim to become an integrated energy company that contributes to the community and makes it more livable and pros- Compensation for Directors and Audit & Supervisory perous. Based on this mission, to achieve sustainable growth and Board Members in FY2020 increase corporate value over the medium to long term, the Com- Total compensation by type Number of eligible Growth Strategies for Value Creation pany fulfills its social esponsibilitiesr in cooperation with its share- Total amount of directors and Audit holders and other stakeholders, and works to enhance its compensation (millions of yen) Classification & Supervisory Board paid corporate governance for the purpose of conducting transparent, Basic Stock-based members (millions of yen) Bonus fair, timely and decisive decision making. The INPEX Group made compensation remuneration (persons) Directors clear its basic views and policies on corporate governance and, 447 381 54 11 9 with the aim of ensuring transparency and fairness in the Compa- (excluding outside directors) ny’s decision making, as well as realizing effective corporate gov- Audit & Supervisory Board members 31 31 -- 1 ernance by carrying out the proactive dissemination of (excluding outside Audit & information, formulated its Corporate Governance Guidelines. Supervisory Board members) Please refer to our Web site for details. Outside directors and www.inpex.co.jp/english/company/governance.html outside Audit & Supervisory 156 156 -- 10 Board members Notes: 1. The number of directors and Audit & Supervisory Board members presented in the Class A Stock table above includes one director who retired at the conclusion of the Company’s 14th Ordinary General Meeting of Shareholders held on March 25, 2020. According to the stipulations of the Articles of Incorporation, IN- 2. The Company does not uphold an accrued retirement benefits plan. PEX issues a Class A Stock to the Minister of Economy, Trade and 3. The maximum monthly basic compensation for directors was resolved to be Industry. The Class A Stock does not possess voting rights at within ¥47 million (including monthly compensation for outside directors of within ¥6 million) at the 11th Ordinary General Meeting of Shareholders held on June shareholders’ meetings. However, it is possible for the holder of 27, 2017. The number of directors immediately after the conclusion of the 15th the Class A Stock to exercise veto rights for certain major corpo- Ordinary General Meeting of Shareholders held on March 25, 2021 is fourteen rate decisions. We think the holding of Class A Stock by the Minis- (including six outside directors). 4. The maximum monthly basic compensation for Audit & Supervisory Board The Basis of our Value Creation ter of Economy, Trade and Industry will help prevent any incidence members was resolved to be within ¥10 million at the 13th Ordinary General of unusual management, allow INPEX to stably supply energy as a Meeting of Shareholders held on June 25, 2019. The number of Audit & core company for Japan’s oil & gas E&P and ensure that the Com- Supervisory Board members immediately after the conclusion of the 15th Ordinary General Meeting of Shareholders held on March 25, 2021 is five. pany does not incur any negative impact from a speculative acqui- 5. The amount of bonus is the amount based on the resolution made at the 15th sition or an attempt at management control through foreign Ordinary General Meeting of Shareholders held on March 25, 2021 to pay a total capital. On this basis, INPEX’s role is assured. Furthermore, we ex- amount of ¥54 million to eight directors in office at the end of the business year under review, excluding outside directors. pect positive results in terms of external negotiation and credits 6. At the 12th Ordinary General Meeting of Shareholders held on June 26, 2018, the as a national flagship company efficiently contributing to the sta- Company resolved to introduce a stock-based remuneration system for directors ble supply of energy in Japan. (excluding outside directors and non-residents of Japan) and executive officers (the BIP Trust). The number of directors (excluding outside directors and non- residents of Japan) immediately after the conclusion of the 15th Ordinary General Meeting of Shareholders held on March 25, 2021 is eight. The amount of the Director Compensation stock-based remuneration presented in the table above represents the fees With the aim of strengthening the functional independence and incurred regarding the stock-based points granted during the business year under review concerning the BIP Trust for directors. objectivity as well as accountability of the Board of Directors in connection with compensation paid to directors, the Board of Di- rectors specifies a policy for determining the amount and compu- Accounting Audit and Auditor Compensation tation method of compensation paid to directors and Audit & In accordance with the Companies Act and the Financial Instru- Supervisory Board members, following a report from the Nomina- ments and Exchange Act, we accept accounting audits from Ernst tion and Compensation Advisory Committee. The compensation & Young ShinNihon LLC. The amount of auditor compensation is Performance and Financial Overview for directors, with the exception of outside directors, consists of determined in total based on the audit plan and the number of three types: basic compensation, bonuses (performance-based auditing dates, after obtaining approval from the Audit & Supervi- compensation) and stock-based remuneration. Compensation for sory Board. outside directors is limited to basic compensation only. Basic compensation is paid based on the duties of each Director and (1) Status of accounting audit the bonus shall be paid based on the Company’s performance Name of CPA firm Ernst & Young ShinNihon LLC from a medium- to long-term perspective and other factors. As to Cumulative accounting 45 years the stock-based compensation, the Company’s shares, etc. will be audit period delivered based on the position, etc. of each Director, with the Name of CPAs Hiroaki Kosugi aim of raising the awareness of Directors towards increasing the conducting accounting Satoshi Takagi enterprise value of the Company and further increase their willing- audit Takeshi Yoshida ness to contribute to maximizing shareholder value, by making Accounting audit 26 CPAs, 8 persons who passed an accounting clear the linkage between the remuneration of Directors and the members exam, etc., and 22 others Company’s medium- to long-term stock price. Based on a resolu- (2) Compensation paid to the CPAs tion passed in June 2018 at the 12th Ordinary General Meeting of ¥302 million Shareholders, a stock-based remuneration system has been intro- Compensation for INPEX: ¥228 million; auditing services duced for directors and executive officers. The Board of Directors Consolidated subsidiaries: ¥73 million decide on compensation for directors within the limits and terms ¥27 million Compensation for approved at the general meeting of shareholders following INPEX: ¥14 million; non-auditing services a report from the Nomination and Compensation Advisory Com- Consolidated subsidiaries: ¥12 million mittee. For details on the decision policy regarding the content of individual compensation for directors, please refer to the (3) Compensation paid to the network firm (excluding (2)) Corporate Governance Report (pages 9 and 10). Compensation ¥125 million Compensation for for Audit & Supervisory Board members consists solely of a basic INPEX: —; auditing services compensation, which is determined through consultation between Consolidated subsidiaries: ¥125 million ¥125 million the Audit & Supervisory Board members, within the limits and Compensation for INPEX: ¥13 million; terms approved at the general meeting of shareholders. non-auditing services Consolidated subsidiaries: ¥111 million

INPEX CORPORATION Annual Report 2020 49

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Evaluation of the Effectiveness of the Board of Directors

With the aims of regularly verifying that the Board of Direc- sixth evaluation was conducted in FY2020. The evaluation tors is functioning appropriately and identifying issues to be method and summary of the results are as follows. Based on resolved for continuous improvement, the Company under- these evaluation results, the Company will continue to strive takes an evaluation of the effectiveness of the Board of Di- to improve the effectiveness of the Board of Directors. rectors (the “Board Evaluation”) each year, and discloses a summary of the evaluation results. Based on this policy, the

Evaluation method Summary of evaluation results An interim review of the issues identified in the Board Evaluation for the previ- It was concluded that the overall effectiveness of the board is sufficient, as ous fiscal year was undertaken at the meeting with outside directors and Audit in the previous fiscal year. & Supervisory Board members held in August 2020. The specific implementa- In particular, ongoing initiatives to secure time for substantial deliberation tion method for this fiscal year’s Board Evaluation was also discussed, including were positively evaluated, such as enhanced briefings provided to part- the appointment of a third-party evaluation organization. As a result, it was de- time officers prior to Board of Directors meetings, and the prior indication cided to appoint a major external law firm as a third-party evaluation organiza- of the timeframes for deliberation. In addition, a discussion on agenda tion to confirm the appropriateness of the survey content and composition, the items specifically focused on themes that require discussion from a medi- method of consolidation and analysis by the Board of Directors office, and pro- um- to long-term perspective, a lecture and discussion on climate change posals for improvement. Subsequently, this fiscal year’s implementation policy by an external expert for the Board of Directors, and meetings held online and evaluation items were deliberated at the meeting of the Board of Directors in response to the COVID-19 pandemic all received positive evaluations, held in November, including the content and composition of the survey pre- and their continuation was requested. pared by the Board of Directors office based on review by the third-party evaluation organization. The evaluation items included the self-evaluation of each The following challenges were established, as issues requiring ongoing, director and Audit & Supervisory Board member, the composition, operations, short- or medium-term initiatives, in order to further enhance the effec- roles and responsibilities of the Board of Directors and operations of the Nom- tiveness of the Board of Directors. ination and Compensation Advisory Committee, as well as the status of im- Further enhance discussions regarding strategies based on changes in provement of issues identified in the previous evaluation. An anonymous the business environment survey (online) of all directors and Audit & Supervisory Board members was Further revitalize discussions at Board of Directors meetings conducted in December. In order to obtain more specific views and opinions Hold deeper discussions regarding the desired state of the Board of from them, they were encouraged to comment on many of the questions. Directors Subsequently, results of the survey were consolidated and analyzed by the Secure opportunities for discussion on the desired state of governance Board of Directors secretariat. After receiving confirmation and indications re- in the Group garding the appropriateness of the method of consolidation and analysis and the draft improvement proposals from the third-party evaluation organization, The third-party evaluation organization has concluded that the Board of Di- the results of the consolidation and analysis as well as issues and initiatives for rectors secretariat has appropriately consolidated and analyzed the results of the future were discussed at a meeting among the outside directors, Audit & the evaluation, and that the challenges presented above, drawn from these Supervisory Board members and the representative director in January 2021. results and analysis, have been suitably established. Based on this discussion, the following evaluation results were confirmed at the Board of Directors meeting held in February 2021.

Monitoring of Management by Outside Directors and Audit & Supervisory Board Members

Outside Directors Independence of Outside Directors and Regarding the appointment of outside directors, we believe that it Outside Audit & Supervisory Board Members is important to comprehensively consider a variety of factors. The Company has reported all outside directors and outside Au- These factors include the validity of business decisions and con- dit & Supervisory Board members as independent directors as de- sideration of their efficacy, professionalism and objectiveness in fined by Tokyo Stock Exchange, Inc. As a part of efforts to comply the oversight function in addition to the perspective of indepen- with the Corporate Governance Code, INPEX has formulated in- dence. As corporate managers, academics or other specialists, dependence standards for outside directors and outside Audit & our company’s six outside directors posses broad knowledge and Supervisory Board members taking into consideration the inde- many years of experience as managers in such fields as resource/ pendence standards and qualifications for independent directors energy industry, finance and legal matters. Three of the outside issued by the Tokyo Stock Exchange. The Company determines directors also concurrently serve as advisors to Japan Petroleum the independence of outside directors, including major share- Exploration Co., Ltd., ENEOS Holdings, Inc. and Mitsubishi Cor- holders and business partners that do not fall within the scope of poration, respectively, all of which are shareholders (hereinafter these standards. referred to as “company shareholders”) of the company. As INPEX and all the company shareholders are engaged in business activities in the same fields, there is a possibility of conflicts of interest Audit & Supervisory Board and Audit & arising. Accordingly, the company recognizes the necessity to pay Supervisory Board Members particular attention to corporate governance. INPEX considers it The Audit & Supervisory Board is composed of five Audit & Su- important for all its directors including outside directors to carry pervisory Board members, four of which come from outside. out their management duties while maintaining a high level of In addition to attending meetings of the Board of Directors awareness at all times on matters including the obligation to pro- and the Executive Committee, the Audit & Supervisory Board hibit competition under the Companies Act, the appropriate han- members review the execution of business duties by directors and dling of transactions with conflicts of interest and the prevention executive officers through reports given by and hearings for relat- of information leakage, etc. The company has therefore obtained ed departments. Furthermore, the Audit & Supervisory Board pledges confirming these points from all directors including the members meet on regular and as needed bases with the Indepen- three outside directors referred above. dent Auditors, and receive reports from the Independent Auditors regarding audits. They also conduct regular meetings with the in- Outside Audit & Supervisory Board Members ternal audit department (Audit Unit) to receive reports regarding internal audits and the evaluation of internal controls. When appointing outside Audit & Supervisory Board members, To strengthen the auditing function and ensure viable corpo- we believe that it is important to comprehensively consider factors rate governance, steps have been taken to set up the Audit & Su- such as independence, efficacy in the oversight function and pro- pervisory Board Members’ Office and to deploy dedicated staff. In fessionalism. Four of the Company’s five Audit & Supervisory this manner, efforts are being made to promote collaboration Board members are appointed from external sources. Audit & Su- along the aforementioned terms between Audit & Supervisory pervisory Board members possess a rich knowledge and experi- Board members, the Audit Unit and the Independent Auditors. ence in the Company’s business as well as in such fields as finance, Moreover, we have constructed a system to strengthen the moni- legal affairs and management, which they use when performing toring function through periodic meetings with representative di- auditing activities for the Company. rectors and directors.

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Outside Directors / Outside Audit & Supervisory Board Members: Concurrently Held Positions and Reason for Appointment

Attendance at board Independent Officer positions held at other Name Reason for appointment meetings for the fiscal year director/auditor organizations ended December 31, 2020 Advisor of Mitsubishi Corporation To utilize his rich experience and broad knowledge Board of Directors Outside Director, Kintetsu World in the resources/energy industry in our company’s Jun Yanai meetings 14/14 Express, Inc. management. To utilize his rich experience and broad knowledge Board of Directors - in the resources/energy industry in our company’s Norinao Iio meetings 14/14 management. In addition to a broad base of knowledge related to international conditions built up through her Outside directors years working as a diplomat, she is also well-versed Board of Directors Outside Director, TAISEI CORPORATION Atsuko Nishimura in the fields of resources and energy. Also meetings 14/14 nominated because we are confident she can provide suggestions on a diverse array of topics. Senior Corporate Advisor, ENEOS To utilize his rich experience and broad knowledge Board of Directors Holdings, Inc. as a manager in the resources/energy industry in Growth Strategies for Value Creation Yasushi Kimura meetings 14/14 Outside Director, Nissan Motor Co., Ltd. our company’s management. To utilize his rich experience and broad knowledge Advisor of Japan Petroleum Board of Directors in the oil and gas development industry in our Kiyoshi Ogino Exploration Co., Ltd. (JAPEX) meetings 14/14 company’s management. To utilize his abundance of knowledge in corporate management based on his expertise in corporate legal affairs cultivated through his extensive Board of Directors - Tomoo Nishikawa experience as a lawyer, as well as wide-ranging meetings 11/11* insight drawn from his legal knowledge particularly in the field of international transactions. Board of Directors Possesses extensive experience and knowledge in meetings 14/14 - finance, as well as professional knowledge and Hideyuki Toyama Audit & Supervisory Board

Outside Audit & Supervisory experience as an attorney. meetings 14/14 Board of Directors Possesses abundant experience and wide-ranging Board members meetings 14/14 - knowledge in fields such as international finance Shinya Miyake Audit & Supervisory Board and financial affairs. meetings 14/14 President and CEO, Mizuho Marubeni Board of Directors Possesses abundant experience and wide-ranging Leasing Corporation meetings 14/14 knowledge in fields such as financial affairs and Mitsuru Akiyoshi Outside Director, Concordia Financial Audit & Supervisory Board management. Group, Ltd. meetings 14/14

Possesses abundant experience as a freelance The Basis of our Value Creation newscaster, university lecturer, and holder of public Board of Directors offices such as seats on the Advisory Committee meetings 14/14 - Hiroko Kiba for Natural Resources and Energy and Industrial Audit & Supervisory Board Structure Council, as well as her wide-ranging meetings 14/14 knowledge on a variety of diverse topics.

* Attendance of director Tomoo Nishikawa represents attendance after his taking office on March 25, 2020.

Internal Committees

To further enhance the efficacy of the corporate governance function, INPEX has set up the Nomination and Nomination and Comensation dvisor Committee Compensation Advisory Committee, the INPEX Advi- INPEX dvisor Committee sory Committee, the Compliance Committee and Board of Directors Comliance Committee the CSR Committee. In addition, the Company maintains the Corporate HSE Committee, the Informa- CS Committee

tion Security Committee and the INPEX Value Cororate SE Committee Performance and Financial Overview Assurance System Committee to appropriately manage Information Securit Committee risks associated with business operations. Executive Committee INPEX Value ssurance Sstem Committee

Nomination and Compensation Advisory Committee CSR Committee Number of meetings held in FY2020: 3 Number of meetings held in FY2020: 5 In April 2012, the INPEX Group established the CSR Committee with the aims of better The Nomination and Compensation Advisory Committee was estab- fulfilling its corporate social responsibility and promoting activities that contribute to lished in January 2017 with the aim of strengthening the functional inde- the sustainable development of society. The committee puts in place fundamental poli- pendence and objectivity as well as accountability of the Board of cies and formulates important measures designed to promote CSR. Directors in connection with the nomination of and compensation paid to directors. Corporate HSE Committee Number of meetings held in FY2020: 8 In accordance with the HSE Management System, the Corporate HSE Committee was INPEX Advisory Committee established in October 2007 to promote health, safety and environmental initiatives. In Number of meetings held in FY2020: 2 addition to formulating corporate HSE policies and priority targets for each period, the The INPEX Advisory Committee was established in October 2012 with committee advances HSE activities across the organization. the aim of enhancing corporate value and the corporate governance Information Security Committee Number of meetings held in FY2020: 2 function. Comprising external experts in a broad spectrum of fields, the committee provides the Board of Directors with multifaceted and objec- The Information Security Committee was established in November 2007 to consider tive advice and recommendations across a wide range of areas. Areas of and determine all appropriate measures necessary to maintain, manage and strengthen discussion and advice include international political and economic con- information security. The committee also takes steps to address any incident relating to ditions, an outlook of energy conditions and ways in which to bolster information security and to put in place preventive measures. corporate governance. INPEX Value Assurance System Committee Compliance Committee Number of meetings held in FY2020: 9 Number of meetings held in FY2020: 6 The Compliance Committee was established in April 2006 with the aim The INPEX Value Assurance System Committee was established in May 2014 to contrib- of promoting compliance initiatives across the entire Group. The com- ute to the Company’s decision-making process with respect to confirmation of the mittee formulates fundamental compliance policies applicable to the status of preparations in connection with important milestones of those oil and natural Group, deliberates on important matters and manages the manner in gas upstream business projects in which INPEX participates, and the improvement and which compliance is practiced. promotion of project.

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Message from the Senior Vice President, Finance & Accounting

While carefully assessing crude oil price fluctuations, we will strive to realize our consolidated earnings forecasts for the fiscal year ending December 2021 and build a strong financial base.

Daisuke Yamada Director, Managing Executive Officer, Senior Vice President, Finance & Accounting

Overview of the fiscal year ended December 31, 2020

In the fiscal year ended December 31, 2020, the aver- recording of an impairment loss of ¥189.9 billion as a age Brent crude oil price, a benchmark index for the result of the deterioration of the business environment Group, fell by 32.7% compared with the previous fiscal associated with the fall in crude oil prices, we recorded year to US$43.2 due to the impact of the COVID-19 a net loss attributable to owners of parent of ¥111.6 bil- pandemic and the resulting decline in energy demand. lion in the current fiscal year, down from ¥167.3 billion in Given these impacts, the Group’s performance for the income for the same period of the previous fiscal year, fiscal year under review consisted of net sales of ¥771.0 marking the first time we ended in the red since our in- billion, down 34.2% year on year, an operating income tegration in 2008. Net income attributable to owners of of ¥248.4 billion, down 55.6%, and a ordinary income of parent, excluding the effects of one-off losses such as ¥257.3 billion, down 56.0%. In addition, due to the impairment losses, was ¥54.6 billion.

Financial position as of December 31, 2020

Regarding the status of our financing, rating agencies mainly due to an increase in borrowings. Net assets as have assessed our liquidity level as “high,” and we have of December 31, 2020 decreased by ¥295.8 billion from been able to secure the necessary funds even amid December 31, 2019 to ¥3,001.3 billion, mainly due to a low oil price environment. Total assets as of Decem- a decrease in shareholders’ equity as a result of record- ber 31, 2020 decreased by ¥215.4 billion from Decem- ing losses and a decrease in accumulated other com- ber 31, 2019 to ¥4,634.5 billion, primarily due to the prehensive income. As of December 31, 2020, our net recording of an impairment loss on fixed assets. Total borrowings, including those for Ichthys downstream op- assets for off-balance sheet Ichthys downstream IJV erating companies, decreased by approximately ¥200.0 were ¥3,601.4 billion. billion from December 31, 2019 to approximately Total liabilities as of December 31, 2020 increased by ¥2,100.0 billion. ¥80.3 billion from December 31, 2019 to ¥1,633.1 billion, Note: Figures on page 52 and 53 are rounded down.

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Cash flows for the fiscal year ended December 31, 2020

Regarding cash flows for the fiscal year ended Decem- promoting cost reductions and optimizations amid a ber 31, 2020, including those of Ichthys downstream IJV, low oil price environment. We were therefore able to while net cash provided by operating activities before secure a free cash flow1 of ¥182.0 billion in the fiscal year exploration expenditure1 was impacted by a significant ended December 31, 2020. In addition, net cash used in decline in oil prices, we secured ¥349.2 billion due to financing activities was ¥195.4 billion due to repayments smooth production operations at Ichthys. Net cash used of borrowings and other factors. in investing activities1 was ¥167.2 billion as a result of Cash flows for the fiscal year ended December 31, 20201 (¥ billion) 600 349.2 Growth Strategies for Value Creation 500

400 (167.2) 300 FCF 212.3 +182.0 199.0 200 (195.4) 100

0 Available funds Cash flows from Cash flows from Cash flows from Available funds as of Dec. 31, 2019 operating investing activities financing activities2 as of Dec. 31, 2020 activities before (incl. exploration exploration expenditure expenditure) 1. Differs from cash flow based on institutional accounting practices due to the inclusion of the Ichthys downstream IJV, an equity-method affiliate. 2. Including translation adjustments related to available funds

Consolidated financial forecast for the fiscal year ending December 2021 The Basis of our Value Creation (as of May 13, 2021)

Assuming a crude oil price average of 60.30 US dollars Consolidated financial forecast for the fiscal year ending per barrel and an exchange rate average of 107.5 Japa- December 2021 nese yen against the US dollar for the full year, we FY 2020/12 FY 2021/12 expect to generate net sales of 1,055 billion yen and Results Outlook a net income attributable to owners of parent of 140 bil- Net sales lion yen, as outlined in our consolidated financial fore- billion billion (JPY) 771.0 1,055.0 cast for the fiscal year ending December 2021. Operating income billion billion Regarding the cash flow situation for fiscal year 2021 (JPY) 248.4 452.0 including the Ichthys downstream IJV, cash flow from Ordinary income billion billion operations before exploration investment is expected (JPY) 257.3 483.0

to be approximately 525 billion yen, and cash flow from Net income (loss) Performance and Financial Overview investment is expected to be approximately 250 billion attributable to -111.6 billion 140.0 billion yen. Free cash flow is expected to be approximately 275 owners of parent billion yen. (JPY) Note: Diff ers from cash flow based on institutional accounting practices due to the inclusion of the Ichthys downstream IJV, an equity-method affiliate.

Impact of crude oil price and foreign exchange rate fluctuations on net income attributable to owners of parent for the year ending December 31, 20211 1. The sensitivities represent the impact on net income for the year ending December 31, 2021 as of Brent Crude Oil Price: $1/bbl the beginning of the fiscal year against a $1/bbl increase (decrease) in the Brent crude oil price on increase (decrease) 2 average and a ¥1 depreciation (appreciation) against the U.S. dollar. These are based on the financial situation mainly of existing production projects at the beginning of the fiscal year. These are for reference purposes only and the actual impact may change due to fluctuations in production vol- At beginning of 1Q umes, capital expenditures and cost recoveries, and may not be constant, depending on crude oil +¥6.6 billion (–¥6.6 billion) prices and exchange rates. The impact on net income will change in 2. Net income sensitivity is determined by fluctuations in the oil price and is subject to the average price of crude oil (Brent). A breakdown of quarterly sensitivity figures is listed below taking into FY2021 as below; consideration certain natural gas sales applying oil prices on a delayed basis: At beginning of 2Q: +¥4.6 billion (–¥4.6 billion) At beginning of 1Q: +¥6.6 billion (1Q: +¥1.0 billion, 2Q: +¥1.2 billion, 3Q: +¥2.2 billion, 4Q: At beginning of 3Q: +¥2.4 billion (–¥2.4 billion) +¥2.2 billion) At beginning of 4Q: +¥1.0 billion (–¥1.0 billion) At beginning of 2Q: +¥4.6 billion (1Q: –, 2Q: +¥1.0 billion, 3Q: +¥1.4 billion, 4Q: +¥2.2 billion) At beginning of 3Q: +¥2.4 billion (1Q: –, 2Q: –, 3Q: +¥1.0 billion, 4Q: +¥1.4 billion) Exchange Rate: ¥1 depreciation At beginning of 4Q: +¥1.0 billion (1Q: –, 2Q: –, 3Q: –, 4Q: +¥1.0 billion) 3 3. This is a sensitivity on net income determined by fluctuation of the yen against the U.S. dollar and (appreciation) against the U.S. dollar is subject to the average exchange rate. On the other hand, sensitivity related to the valuation of assets and liabilities denominated in the U.S. dollar on net income incurred by foreign exchange +¥2.0 billion (–¥2.0 billion) differences between the exchange rate at the end of the fiscal year and the end of the previous fiscal year is largely neutralized.

INPEX CORPORATION Annual Report 2020 53

014_0219287912106.indd 53 2021/06/30 10:52:07 11-Year Financial Information INPEX CORPORATION and Consolidated Subsidiaries

The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at ¥103.52=US$1.00, the approximate exchange rate in effect as of December 31, 2020.

Thousands of Millions of yen Millions of yen Millions of yen U.S. dollars 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2019/12*1 2020/12 2020/12

Results of operations

Net sales ¥ 943,080 ¥ 1,186,732 ¥ 1,216,533 ¥ 1,334,626 ¥ 1,171,227 ¥ 1,009,564 ¥ 874,423 ¥ 933,702 ¥ 971,389 ¥ 1,000,005 ¥ 771,046 $ 7,448,280

Cost of sales 334,833 395,443 426,326 490,417 525,444 526,758 453,847 498,039 413,300 424,702 439,852 4,248,956 Gross profit 608,247 791,289 790,207 844,209 645,783 482,806 420,576 435,663 558,089 575,303 331,194 3,199,323

Operating income 529,743 709,358 693,448 733,610 534,886 390,139 336,453 357,363 474,282 498,641 248,471 2,400,222

Income before income taxes 508,587 767,039 718,146 750,078 540,023 328,887 327,525 307,300 494,043 510,292 67,394 651,023 Net income (loss) attributable to ¥ 128,699 ¥ 194,001 ¥ 182,962 ¥ 183,691 ¥ 77,820 ¥ 16,777 ¥ 46,168 ¥ 40,363 ¥ 96,106 ¥ 123,550 ¥ (111,699) $ (1,079,008) owners of parent

Financial position

Current assets ¥ 492,932 ¥ 908,702 ¥ 1,106,504 ¥ 1,140,204 ¥ 1,342,410 ¥ 984,345 ¥ 942,960 ¥ 466,351 ¥ 457,712 ¥ 419,802 ¥ 387,093 $ 3,739,306

Tangible fixed assets 379,862 383,698 584,541 951,779 1,497,622 1,752,615 1,928,598 2,044,620 2,278,995 2,275,372 2,069,783 19,994,039 Intangible assets 249,111 233,318 380,156 439,179 458,770 541,471 521,253 541,503 520,213 535,330 441,837 4,268,131

Investments and other assets 1,558,475 1,540,680 1,544,958 1,506,977 1,200,352 1,091,411 919,363 1,199,913 1,536,626 1,619,489 1,735,804 16,767,812

Total assets 2,680,380 3,066,398 3,616,159 4,038,139 4,499,154 4,369,842 4,312,174 4,252,387 4,793,546 4,849,995 4,634,518 44,769,300

Current liabilities 254,729 367,844 414,977 375,670 365,212 319,128 297,465 305,439 372,001 401,483 339,288 3,277,511

Long-term liabilities 328,268 384,361 530,198 666,432 845,238 871,911 807,166 788,079 1,163,961 1,151,334 1,293,890 12,498,937

Net assets ¥ 2,097,383 ¥ 2,314,193 ¥ 2,670,984 ¥ 2,996,037 ¥ 3,288,704 ¥ 3,178,803 ¥ 3,207,543 ¥ 3,158,869 ¥ 3,257,584 ¥ 3,297,176 ¥ 3,001,339 $ 28,992,841

Cash flows Cash flows from operating ¥ 274,094 ¥ 320,692 ¥ 252,347 ¥ 213,514 ¥ 216,749 ¥ 183,708 ¥ 275,810 ¥ 278,539 ¥ 238,566 ¥ 274,730 ¥ 292,915 $ 2,829,549 activities Cash flows from investing (844,511) (280,864) (489,870) (395,555) (81,087) (543,534) 53,484 (351,908) (682,006) (288,740) (417,189) (4,030,032) activities Cash flows from financing 548,057 29,294 137,069 48,961 (4,178) 156,726 (65,428) 34,742 405,185 (48,615) 126,747 1,224,372 activities Cash and cash equivalents at end ¥ 182,025 ¥ 249,233 ¥ 199,859 ¥ 117,531 ¥ 260,978 ¥ 53,813 ¥ 316,791 ¥ 276,080 ¥ 239,653 ¥ 173,774 ¥ 172,405 $ 1,665,426 of the period

Per share data

Net assets per share (Yen) ¥ 1,367.40 ¥ 1,492.27* ¥ 1,699.10* ¥ 1,911.25* ¥ 2,099.95 ¥ 2,008.34 ¥ 2,015.38 ¥ 1,997.24 ¥ 2,058.95 ¥ 2,082.43 ¥ 1,874.08 $ 18.10

Cash dividends per share (Yen) 15.00* 17.50* 17.50* 18.00* 18.00 18.00 18.00 18.00 24.00 30.00 24.00 0.23

Earnings (loss) per share (EPS) (Yen) ¥ 102.08* ¥ 132.84* ¥ 125.29* ¥ 125.78* ¥ 53.29 ¥ 11.49 ¥ 31.61 ¥ 27.64 ¥ 65.81 ¥ 84.61 ¥ (76.50) $ (0.74)

*Retrospectively adjusted for a stock split at a ratio of 1:400 of common stock on October 1, 2013.

Financial indicators Net debt / Net total capital (48.9)% (60.7)% (43.9)% (31.9)% (16.8)% (8.1)% 0.9 % 11.8 % 21.7 % 22.3 % 26.0 % 26.0 % employed3 (%) Equity ratio4 (%) 74.5 71.1 68.6 69.1 68.2 67.1 68.3 68.6 62.7 62.7 59.0 59.0

D/E ratio5 (%) 13.7 % 14.6 % 19.2 % 20.9 % 22.1 % 25.3 % 23.4 % 24.0 % 38.0 % 36.8 % 45.1 % 45.1 %

Notes 1. Effective from the year ended December 31, 2019, the Company changed its consolidated fiscal year-end from March 31 to December 31. As a result of this change, the year ended December 31, 2019 was a period of nine months from April 1 to December 31, 2019. 2. The amounts in millions of yen and in thousands of U.S. dollars, as of and for the year ended March 31, 2019 and prior periods are rounded off. On the other hand, such amounts as of and for the year ended December 31, 2019 and onwards are rounded down and therefore the totals do not necessarily agree with the sum of the individual account balances for the corresponding period.

54 INPEX CORPORATION Annual Report 2020

014_0219287912106.indd 54 2021/06/30 10:52:07 INPEX’s Vision and Value Creation

Thousands of Millions of yen Millions of yen Millions of yen U.S. dollars 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2019/12*1 2020/12 2020/12

Results of operations

Net sales ¥ 943,080 ¥ 1,186,732 ¥ 1,216,533 ¥ 1,334,626 ¥ 1,171,227 ¥ 1,009,564 ¥ 874,423 ¥ 933,702 ¥ 971,389 ¥ 1,000,005 ¥ 771,046 $ 7,448,280

Operating income 529,743 709,358 693,448 733,610 534,886 390,139 336,453 357,363 474,282 498,641 248,471 2,400,222 Growth Strategies for Value Creation

Financial position

Current assets ¥ 492,932 ¥ 908,702 ¥ 1,106,504 ¥ 1,140,204 ¥ 1,342,410 ¥ 984,345 ¥ 942,960 ¥ 466,351 ¥ 457,712 ¥ 419,802 ¥ 387,093 $ 3,739,306

Investments and other assets 1,558,475 1,540,680 1,544,958 1,506,977 1,200,352 1,091,411 919,363 1,199,913 1,536,626 1,619,489 1,735,804 16,767,812

Total assets 2,680,380 3,066,398 3,616,159 4,038,139 4,499,154 4,369,842 4,312,174 4,252,387 4,793,546 4,849,995 4,634,518 44,769,300

Current liabilities 254,729 367,844 414,977 375,670 365,212 319,128 297,465 305,439 372,001 401,483 339,288 3,277,511 The Basis of our Value Creation Long-term liabilities 328,268 384,361 530,198 666,432 845,238 871,911 807,166 788,079 1,163,961 1,151,334 1,293,890 12,498,937

Net assets ¥ 2,097,383 ¥ 2,314,193 ¥ 2,670,984 ¥ 2,996,037 ¥ 3,288,704 ¥ 3,178,803 ¥ 3,207,543 ¥ 3,158,869 ¥ 3,257,584 ¥ 3,297,176 ¥ 3,001,339 $ 28,992,841

Per share data Performance and Financial Overview

Net assets per share (Yen) ¥ 1,367.40 ¥ 1,492.27* ¥ 1,699.10* ¥ 1,911.25* ¥ 2,099.95 ¥ 2,008.34 ¥ 2,015.38 ¥ 1,997.24 ¥ 2,058.95 ¥ 2,082.43 ¥ 1,874.08 $ 18.10

Cash dividends per share (Yen) 15.00* 17.50* 17.50* 18.00* 18.00 18.00 18.00 18.00 24.00 30.00 24.00 0.23

Earnings (loss) per share (EPS) (Yen) ¥ 102.08* ¥ 132.84* ¥ 125.29* ¥ 125.78* ¥ 53.29 ¥ 11.49 ¥ 31.61 ¥ 27.64 ¥ 65.81 ¥ 84.61 ¥ (76.50) $ (0.74)

*Retrospectively adjusted for a stock split at a ratio of 1:400 of common stock on October 1, 2013.

D/E ratio5 (%) 13.7 % 14.6 % 19.2 % 20.9 % 22.1 % 25.3 % 23.4 % 24.0 % 38.0 % 36.8 % 45.1 % 45.1 %

3. Net debt / Net total capital employed = Net debt / (Net assets + Net debt) 4. Equity ratio = Net assets excluding non-controlling interests / Total assets 5. D/E ratio = Interest-bearing debt / (Net assets – Non-controlling interests)

INPEX CORPORATION Annual Report 2020 55

014_0219287912106.indd 55 2021/06/30 10:52:07 In production THAILAND Under development VIETNAM PHILIPPINES Project Overview by Region Preparation for development CAMBODIA Under exploration

6 Block 05-1b/05-1c OP Operator project Key group company (Sao Vang and headquaters and ofﬁces MALAYSIA Dai Nguyet Gas Field) PALAU Asia & Oceania SK-10 napore 4 Tangguh LNG Project In the Asia and Oceania region, INPEX is the operator of two SINGAPORE (Berau Block)

large-scale liquefied natural gas (LNG) projects—Ichthys and Sebuku Block Abadi—and is actively involved in exploration projects seek- West Sebuku Block (Ruby Gas Field) aarta INDONESIA 2 Abadi LNG ing further growth in the region. Project OP

3 Prelude FLNG Project arn (WA-44-L) 1 Ichthys LNG Project OP (WA-50-L/WA-51-L) EP(A)318 OP WA-35-L & WA-55-L 5 Bayu-Undan Project (Coniston Oil Field) (PSC-TL-SO-T 19-12 WA-35-L (Van Gogh Oil Field) (former JPDA03-12)) WA-43-L (Ravensworth Oil Field)

Van Gogh Oil Field, AUSTRALIA CPF Ichthys Ravensworth Oil Field Explorer and others Pert 1 Ichthys LNG Project

In 1998, INPEX acquired an exploration permit in the block where the Ichthys 5 Bayu-Undan Project (PSC-TL-SO-T 19-12 Gas-Condensate Field is now located, and following development studies including (former JPDA03-12))

exploration, evaluation and FEED work, INPEX announced its FID in January 2012. PSC-TL-SO-T 19-11

Following the completion and commissioning of production facilities, INPEX com- WA-85-R WA-74-R

menced production in July 2018 and later began shipping condensate, LNG and AC/P66 OP

liquefied petroleum gas (LPG). Production ramp up has progressed very smoothly, AC/P36 OP and in 2020, 122 LNG cargoes were shipped from the project’s onshore gas lique- WA-274-P WA-343-P OP faction plant in Darwin. Maintenance required for safe and stable operations was WA-81-R WA-56-R OP WA-79-R 3 Prelude FLNG Project conducted for approximately one month from May to June 2021. Shipments of ap- WA-84-R (WA-44-L) WA-285-P OP proximately 10 LNG cargoes per month are expected in fiscal 2021. WA-80-R WA-86-R WA-494-P OP Surrounding exploration blocks 1 Ichthys LNG Project WA-533-P OP (WA-50-L/WA-51-L) OP INPEX holds interests in 18 exploration blocks in the vicinity of the Ichthys Gas-Con- WA-281-P WA-532-P OP densate Field and has engaged in exploration activities that have led to the discovery of gas in at least 9 of these blocks. Evaluation work is now being performed on these discoveries. In the event that substantial amounts of hydrocarbons are confirmed as a result of these exploration and evaluation activities, INPEX expects to expand its business by leveraging the synergies of integration with the Ichthys LNG Project.

Contract area Project Venture company Interest owned Production capacity (block) status (established) (*Operator) INPEX Ichthys Pty Ltd* 66.245% LNG: Approximately 8.9 million tons per year INPEX Ichthys TOTAL 26.000% CPC 2.625% WA-50-L/ LPG: Approximately 1.65 million tons per year In production Pty Ltd Tokyo Gas 1.575% Osaka Gas 1.200% WA-51-L Condensate: Approximately 100 thousand barrels (April 5, 2011) Kansai Electric Power 1.200% per day (at peak) JERA 0.735% Toho Gas 0.420%

Contract area Project Venture company Interest owned (block) status (established) (*Operator) WA-84-R/WA-85-R/ INPEX Browse E&P Pty Ltd 40% Santos* 60% WA-86-R Under exploration WA-56-R (blocks under INPEX Browse E&P Pty Ltd* 60% TOTAL 40% WA-80-R appraisal on INPEX Browse E&P Pty Ltd 26.6064% Santos* 63.6299% Beach 9.7637% WA-281-P the discovery INPEX Browse E&P Pty Ltd 29.5% Santos* 70.5% of gas and WA-74-R/WA-79-R/ condensate) WA-81-R/ INPEX Browse E&P Pty Ltd 40% Santos* 60% WA-274-P INPEX Browse E&P Pty Ltd (October 21, 2013) INPEX Browse E&P Pty Ltd* 62.245% TOTAL 30.000% CPC 2.625% WA-285-P Tokyo Gas 1.575% Osaka Gas 1.200% Kansai Electric Power 1.200% JERA 0.735% Toho Gas 0.420% WA-494-P/ WA-532-P/ INPEX Browse E&P Pty Ltd* 100% WA-533-P Under exploration WA-343-P INPEX Browse E&P Pty Ltd* 100% AC/P36 INPEX Browse E&P Pty Ltd* 50% Murphy 50% AC/P66 INPEX Oil & Gas INPEX Browse E&P Pty Ltd* 100% EP(A)318 Australia Pty Ltd (February 28, 2012)

56 INPEX CORPORATION Annual Report 2020

014_0219287912106.indd 56 2021/06/30 10:52:08 In production THAILAND Under development VIETNAM PHILIPPINES CAMBODIA Preparation for development Under exploration INPEX’s Vision and Value Creation 6 Block 05-1b/05-1c OP Operator project 2 Key group company Abadi LNG Project (Sao Vang and headquaters and ofﬁces MALAYSIA Dai Nguyet Gas Field) PALAU The Abadi LNG Project is based on an onshore LNG development scheme that INPEX as the operator is preparing for develop- SK-10 ment alongside Shell in the Masela Block offshore Indonesia. The project is expected to produce approximately 9.5 million tons 4 napore Tangguh LNG Project of LNG per year and up to approximately 35,000 barrels of condensate per day. The project will also supply 150 million cubic SINGAPORE (Berau Block) feet of natural gas per day via pipeline to address local demand for natural gas. Sebuku Block INPEX acquired a 100% interest in the Masela Block in November 1998 through an open West Sebuku Block (Ruby Gas Field) bid conducted by the Indonesian authorities. INPEX subsequently conducted exploration INDONESIA aarta INDONESIA 2 Abadi LNG Project OP activities as the operator, discovering the Abadi Gas Field through the first exploratory well rafura Sea drilled in 2000. Following exploration, evaluation activities and development studies, INPEX 3 Prelude FLNG Project conducted Pre-FEED work from March 2018 based on an onshore LNG development arn Abadi Gas Field (WA-44-L) scheme envisaging an annual LNG production capacity of 9.5 million tons. INPEX submitted 1 Ichthys LNG Project OP EP(A)318 OP a revised plan of development in June 2019 and received approval from the Indonesian au- (WA-50-L/WA-51-L) Timor Sea WA-35-L & WA-55-L 5 Bayu-Undan Project thorities in July 2019. Alongside the approval of the revised development plan, the Indone- (Coniston Oil Field) (PSC-TL-SO-T 19-12 Growth Strategies for Value Creation WA-35-L (Van Gogh Oil Field) sian authorities also approved a 20-year extension of the production sharing contract (PSC) AUSTRALIA (former JPDA03-12)) Gas ﬁeld WA-43-L and the application for a seven-year additional time allocation, extending the term of the Darwin 200km (Ravensworth Oil Field) PSC until 2055. INPEX will undertake front-end engineering design (FEED) work and is aim- 0

Van Gogh Oil Field, AUSTRALIA ing to reach production startup in the latter half of the 2020s. Ravensworth Oil Field and others Contract area Venture company Interest owned Project status Pert (block) (established) (*Operator) Masela Preparation for development INPEX Masela, Ltd. (December 2, 1998) INPEX Masela* 65%, Shell 35%

3 Prelude FLNG Project (WA-44-L) In June 2012, INPEX acquired a 17.5% interest in the Prelude FLNG (floating LNG) Project from Shell during the project’s development stage. The Prelude FLNG Project involves the Timor Sea production of approximately 3.6 million tons per year of LNG, 400 thousand tons per year of LPG at peak and approximately 1.3 million tons of condensate per year at peak from the Concerto Gas Field AUSTRALIA Prelude and Concerto gas fields located in Block WA-44-L, approximately 475 kilometers north-northeast of Broome, off the coast of Western Australia. Shell as the operator of the Prelude Gas Field WA-44-L The Basis of our Value Creation Prelude FLNG Project announced its FID in May 2011. Following the completion and commissioning of production facilities, gas production from the wellhead commenced in December 2018. The first condensate cargo was shipped Ichthys Gas-Condensate in March 2019 followed by the first LNG cargo in June 2019. Production was temporarily sus- Field 0 40km pended from February 2020 for the repair and inspection of production facilities. LNG Gas ﬁeld production has since resumed.

Contract area Project Venture company Interest owned Production capacity (block) status (established) (*Operator) LNG: Approximately 3.6 million tons per year LPG: Approximately 400 thousand tons per year INPEX Oil & Gas INPEX Oil & Gas Australia 17.5% WA-44-L In production (at peak) Australia Pty Ltd Shell* 67.5% KOGAS 10.0% Condensate: Approximately 1.3 million tons per (February 28, 2012) OPIC 5.0% year (at peak) Performance and Financial Overview 4 Tangguh LNG Project (Berau Block) MI Berau B.V., jointly established by INPEX and Mitsubishi Corporation, acquired an interest in the Berau Block in October 2001. In October 2007, MI Berau Japan Ltd., also a joint venture with Mitsubishi Corporation, acquired a stake in KG Berau Petroleum Ltd., effectively Papua Province (Indonesia) increasing INPEX’s interest in the Tangguh LNG Project to around 7.79%. In March 2005, In- donesian authorities approved an extension of the PSC and project development plans for the Tangguh LNG Project until 2035. Following development work, the first shipments of LNG began in July 2009. The final investment decision (FID) to expand the Tangguh LNG Berau Block Project was made in July 2016. The Tangguh LNG expansion project will add a third LNG processing train, which is currently under construction, with production capacity of 3.8 million tons per annum. Gas ﬁeld 0 50km

Contract area Project Venture company Interest owned Production volume** (block) status (established) (*Operator) Ml Berau 22.856% BP* 48.0% Berau Nippon Oil Exploration (Berau) 17.144% KG Berau 12.0% Crude oil: 6 Mbbld MI Berau B.V. In production Natural gas: 1,131 MMcf/d (August 14, 2001) MI Berau 16.3% BP* 40.22% CNOOC 13.9% Tangguh Unit Nippon Oil Exploration (Berau) 12.23% KG Berau 8.56% LNG Japan 7.35% KG Wiriagar 1.44%

** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

INPEX CORPORATION Annual Report 2020 57

014_0219287912106.indd 57 2021/06/30 10:52:08 Project Overview by Region

5 Bayu-Undan Project (PSC-TL-SO-T 19-12 (former JPDA03-12)) In April 1993, INPEX acquired an interest in the former JPDA03-12 contract area, located in the Timor Sea joint petroleum development area (JPDA), which was jointly managed by Australia and East Timor. Exploration within this contract area resulted in the discovery of oil and gas fields. Of these, studies revealed that the Undan structure and the Bayu structure, located in the adjacent former JPDA03-13 contract area, were a single structure. The interest holders unitized both contract areas in 1999, allowing joint development of the Bayu-Undan Gas-Condensate Field to proceed. The commercial production and shipment of condensate and LPG started in 2004 followed by LNG in February 2006. In August 2019, JPDA was abolished as a result of the ratification of a maritime boundary

treaty between Australia and East EAST TIMOR PL1027 INDONESIA Timor, and the area fell under the sole AUSTRALIA jurisdiction of the East Timor govern- PL1130 ment. In accordance with the treaty, PL1129 PL1016 discussions were held between both AUSTRALIA governments and PSC contractors. Darwin SWEDEN RUSSIA The parties agreed to keep the same NORWAY FINLAND Gas Pipeline conditions as the former PSC and con- Olo Bayu-Undan Darwin ESTONIA sequently a new PSC with the East Gas-Condensate Field LATVIA Timor government (Block title: PSC- UNITED 1 Offshore North Caspian Sea 0 50km Gas ﬁeld Oil ﬁeld LITHUANIA TL-SO-T 19-12) was bound. KINGDOM (Kashagan Oil Field and others) Zapadna-Yaraktinsky Block IRELAND BELARUS Sakhalin 1 Project Map includes provisional maritime boundaries Bayu-Undan offshore facility onon POLAND Bolshetirsky Block GERMANY Nurultan CZECH REP. UKRAINE Contract area Project Venture company Interest owned AUSTRIA Production volume** FRANCE HUNGARY KAZAKHSTAN (block) status (established) (*Operator) ROMANIA PSC-TL-SO-T 19-12 INPEX Sahul 19.2458049% Santos* 80.7541951% ITALY GEORGIA BULGARIA 2 ACG Oil Fields Crude oil: 11 Mbbld INPEX Sahul 11.378120% Eni 10.985973% SPAIN UZBEKISTAN INPEX Sahul, Ltd. GREECE TURKEY AZERBAIJAN In production Natural gas: 537 MMcf/d Santos* 68.437907% TURKMENISTAN Bayu-Undan Unit (March 30, 1993) LPG: 5 Mbbld Tokyo Timor Sea Resources (JERA/Tokyo Gas) 9.198000% ** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020 3 BTC Pipeline Project

6 Block 05-1b/05-1c (Sao Vang and Dai Nguyet Gas Field) In production In 2004, INPEX acquired Blocks 05-1b and 05-1c, located 350 Under exploration Sao Vang and Dai Nguyet Gas Field Other project kilometers southeast of Ho Chi Minh City, Vietnam. In 2010, an CAMBODIA VIETNAM Key group company exploration well was drilled in the Dai Nguyet (DN) structure headquaters and ofﬁces leading to the discovery of gas and condensate accumulations. In 2014, another exploration well was drilled in the Sao Vang (SV) structure which also led to the discovery of gas and THAILAND condensate accumulations. In 2017, a development plan for Block 05-1b/05-1c the SV/DN gas field was approved by the Vietnamese govern- 0 10km MALAYSIA Gas ﬁeld ment, and sales of gas from the Sao Vang Gas Field commenced in November 2020. Development work will also continue on the Dai Nguyet Gas Field.

Contract area Project Venture company Interest owned Production volume** (block) status (established) (*Operator) Natural gas: 1.5 billion m3 per year (expected) Teikoku Oil (Con Teikoku Oil (Con Son) Co., Ltd. 36.92% Block 05-1b/05-1c In production Crude oil and condensate: Son) Co., Ltd. Idemitsu Gas Production (Vietnam) Co., Ltd.* 43.08% 2.8 million bbl per year (October 29, 2004) Vietnam Oil and Gas Group (PetroVietnam) 20% (expected)

** Production on the basis of all fields

Other projects Contract area Interest owned Project status Venture company (block) (*Operator) INPEX South Makassar, Ltd. 15% Pearl Oil* 70% Sebuku Block In production INPEX South Makassar, Ltd. Total 15% West Sebuku Block Under exploration INPEX West Sebuku, Ltd. INPEX West Sebuku, Ltd. 24.5% Mubadala* 75.5% WA-35-L (Van Gogh Oil Field) INPEX Alpha, Ltd. 47.499% Santos* 52.501% INPEX Alpha, Ltd. 28.5% BHPBP* 39.999% WA-43-L (Ravensworth Oil Field) INPEX Alpha, Ltd. Santos 31.501% WA-35-L & WA-55-L (Coniston Oil Field) In production INPEX Alpha, Ltd. 47.499% Santos* 52.501% JX Nippon Oil & Gas JX Nippon Oil & Gas Exploration (Malaysia) Limited 75% SK-10 Exploration (Malaysia) Petronas 25% Share in JX Nippon Oil & Gas Exploration Limited (Malaysia) Limited 15%

58 INPEX CORPORATION Annual Report 2020

014_0219287912106.indd 58 2021/06/30 10:52:08 INPEX’s Vision and Value Creation

In the Eurasia region, INPEX is involved in large-scale crude oil projects in Azerbaijan (ACG Oil Fields) and Kazakhstan (Kashagan Oil Field and others). INPEX is also en- Eurasia gaged in projects in East Siberia, some of which have transitioned to the development and production stages, including the Sakhalin 1 Project. Meanwhile, INPEX also participates in exploration projects offshore Norway in the western Barents Sea and the northern Norwegian Sea, with potential for growth.

PL1027

PL1130 PL1129 PL1016 Growth Strategies for Value Creation SWEDEN RUSSIA NORWAY FINLAND Olo ESTONIA LATVIA UNITED LITHUANIA 1 Offshore North Caspian Sea KINGDOM (Kashagan Oil Field and others) Zapadna-Yaraktinsky Block IRELAND BELARUS Sakhalin 1 Project onon POLAND Bolshetirsky Block GERMANY Nurultan CZECH REP. UKRAINE AUSTRIA FRANCE HUNGARY KAZAKHSTAN ROMANIA KAZAKHSTAN ITALY GEORGIA BULGARIA 2 ACG Oil Fields Atyrau SPAIN UZBEKISTAN GREECE TURKEY AZERBAIJAN TURKMENISTAN RUSSIA Offshore North Caspian Sea Contract Area Blac Sea Casian Sea 3 BTC Pipeline Project Tbilisi GEORGIA

Baku The Basis of our Value Creation TURKEY ARMENIA

In production AZERBAIJAN Under exploration BTC Pipeline Other project ACG Oil Ceyhan Key group company Fields headquaters and ofﬁces editerranean IRAQ IRAN Sea SYRIA Oil ﬁeld

1 Offshore North Caspian Sea Contract Area (Kashagan Oil Field and others) In September 1998, INPEX acquired an interest in the Offshore North Caspian Sea Contract Area in Kazakhstan’s territorial waters.

The Kashagan Oil Field is located within this area in the Caspian Sea where the water reaches depths of 3-4 meters, approximately Performance and Financial Overview 75 kilometers southeast of Atyrau, Kazakhstan. Following the drilling of the first exploratory well in September 1999, the Kashagan Oil Field was discovered in 2000 and commercial quantities of oil were confirmed in 2002. After development work, the shipment of crude oil commenced in October 2016. INPEX and its partners have achieved the project’s initial production volume target of 370,000 barrels per day and are currently working to increase the daily production volume to 450,000 barrels. Meanwhile, the presence of

hydrocarbons has been con- KAZAKHSTAN firmed in the Kalamkas, Aktote Kairan Structure and Kairan structures, which are Offshore North Caspian Sea located adjacent to the Kasha- gan Oil Field. Appraisal of these Caspian Sea three structures is being con- Aktote structure ducted in parallel with the devel- Kashagan Oil Field RUSSIA opment of the Kashagan Oil KAZAKHSTAN Field, with a view to expanding TURKEY China Oil ﬁeld the total production of the con- IRAN Gas ﬁeld 0 20km tract area. Block INDIA Offshore facility

Contract area Project Venture company Interest owned (block) status (established) Offshore North Caspian INPEX North Caspian Sea, Ltd. INPEX North Caspian Sea 7.56% Shell 16.81% Eni 16.81% In production Sea (August 6, 1998) ExxonMobil 16.81% TOTAL 16.81% CNPC 8.33% KMG 16.87%

INPEX CORPORATION Annual Report 2020 59

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2 ACG Oil Fields INPEX acquired an interest in the Azeri- Chirag-Deepwater Gunashli (ACG) oil fields in the south Caspian Sea offshore Azerbai- jan in April 2003. At the ACG oil fields, oil is being produced at the Chirag, the Central Azeri, the West Azeri, the East Azeri, the Deepwater Gunashli and the West Chirag locations. In September 2017, INPEX and its partners agreed with the State Oil Com- pany of the Azerbaijan Republic (SOCAR) to extend the duration of the production sharing agreement (PSA) for the ACG oil fields by 25 years until December 31, 2049. The revised PSA came into effect in January 2018. In April 2019, INPEX and its partners made the final invest- AZERBAIJAN Caspian Sea IRAQ IRAN ment decision (FID) on the SYRIA Baku AFGHANISTAN further development of the Aze- ACG Oil fields Block 10 2 Abu Dhabi Offshore Oil Fields El Ouar I / II Block ri- Chirag-Deepwater Gunashli JORDAN KUWAIT (ACG) oil fields through the com- Deepwater EGYPT missioning and deployment of Gunashli Field LIBYA PAKISTAN Chirag Field KAZAKHSTAN 3 Onshore Block 4 OP a new production platform. The Azeri Field u hai new platform is expected to RUSSIA ALGERIA UZBEKISTAN SAUDI UNITED AZERBAIJAN ARABIA OMAN commence production in 2023 Oil field ARAB EMIRATES with the aim of expanding the TURKMENISTAN Block Pipelines IRAN 0 50km volume of proved reserves and MALI NIGER Offshore production facility SUDAN enhancing the project’s value. CHAD ERITREA YEMEN 1 Abu Dhabi Onshore Concession Contract area Project Venture company Interest owned Production volume** (block) status (established) (*Operator) NIGERIA INPEX Southwest Caspian Sea 9.31% SOUTH ETHIOPIA INPEX Southwest Caspian Sea, Ltd. BP* 30.37% MOL 9.57% SOCAR 25.00% CENTRAL ACG In production Crude oil: 477 Mbbld SUDAN (January 29, 1999) Equinor 7.27% ExxonMobil 6.79% AFRICAN REP. TPAO 5.73% Itochu 3.65% ONGC 2.31% CAMEROON SOMALIA ** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020 UGANDA CONGO KENYA GABON DEM.REP. OF CONGO 3 BTC Pipeline Project Angola Block 14 Offshore D.R. Congo Block TANZANIA The 1,770-kilometer BTC Pipe- RUSSIA RUSSIA line stretches from Baku in Caspian Sea In production ANGOLA Under development Azerbaijan on the coast of the GEORGIA Tbilisi Under exploration TURKEY Caspian Sea to Ceyhan in Turkey. Black Sea OP Operator project Baku Key group company Full-scale operations com- ARMENIA headquaters and offices menced in June 2006. The AZERBAIJAN pipeline has a transportation ca- TURKEY BTC Pipeline pacity of 1.2 million barrels per IRAN day, and mainly transports crude Ceyhan oil produced in the ACG oil CYPRUS SYRIA IRAQ fields in Azerbaijan. Mediterranean Sea 0 200km Pipeline Shipping terminal

Contract area Venture company Interest owned (block) (established) (*Operator) INPEX BTC Pipeline 2.5% BP* 30.1% INPEX BTC Pipeline, Ltd. Azerbaijan (BTC) Limited 25% MOL 8.9% BTC Pipeline Project (October 16, 2002) Equinor 8.71% TPAO 6.53% Eni 5% TOTAL 5% Itochu 3.4% ExxonMobil 2.5% ONGC 2.36%

Other projects Contract area Interest owned Project status Venture company (block) (*Operator) Sakhalin Oil and Gas SODECO 30% ExxonMobil* 30% ONGC 20% Rosneft 20% Sakhalin 1 Development Co., Ltd. (SODECO) Share in SODECO 6.08% In production Zapadno-Yaraktinsky Block/ Japan South Sakha Oil Co., Ltd. JASSOC 49% INK* 51% Share in JASSOC 24.998% Bolshetirsky Block (JASSOC) PL1027 INPEX NORGE AS 20% Lundin* 40% DEA 20% DNO 20% PL1016 INPEX NORGE AS 40%, OMV* 60% Under INPEX NORGE AS* 60% M Vest Energy 20% PL1130 INPEX NORGE AS exploration Wintershall Dea Norge 20% INPEX NORGE AS 30% Wintershall Dea Norge* 40% PL1129 Lundin Energy Norway 30%

60 INPEX CORPORATION Annual Report 2020

014_0219287912106.indd 60 2021/06/30 10:52:09 INPEX’s Vision and Value Creation Middle East & Africa

In the Middle East, the Onshore Concession and Offshore Oil Fields located near Abu Dhabi in the United Arab Emirates are contributing substantially to the Company’s oil production capacity. In Africa, oil production is ongoing at various locations including the offshore Angola Block 14.

IRAQ IRAN SYRIA AFGHANISTAN

Block 10 2 Abu Dhabi Offshore Oil Fields El Ouar I / II Block JORDAN KUWAIT EGYPT LIBYA PAKISTAN

3 Onshore Block 4 OP Growth Strategies for Value Creation u hai ALGERIA SAUDI UNITED ARABIA ARAB OMAN EMIRATES

MALI NIGER SUDAN CHAD ERITREA YEMEN 1 Abu Dhabi Onshore Concession

NIGERIA SOUTH ETHIOPIA CENTRAL SUDAN AFRICAN REP. CAMEROON SOMALIA UGANDA CONGO KENYA GABON DEM.REP. OF CONGO Angola Block 14 Offshore D.R. Congo Block TANZANIA The Basis of our Value Creation

In production ANGOLA Under development Under exploration

OP Operator project Key group company headquaters and ofﬁces

1 Abu Dhabi Onshore Concession INPEX acquired a 5% interest in the ADCO Onshore Concession in Abu Dhabi in April 2015 following its participation in a bid. INPEX also concluded a 40-year agreement, effective January 1, 2015, with the Supreme Petroleum Council of the Emirate of Abu Dhabi and Abu Dhabi National Oil Company (ADNOC). The concession contains one of the world’s largest deposits of oil. Stable production of crude oil is currently under way from twelve deposits, and plans are being considered to further increase the daily production capacity from its current two million barrels per day. Performance and Financial Overview 0 60km Abu Dhabi Oil ﬁelds in production Undeveloped oil ﬁelds Crude oil pipelines

United Arab Emirates

Saudi Arabia

Oil processing facility

Contract area Venture company Project status Interest owned (block) (established) Abu Dhabi Onshore JODCO Onshore Limited JODCO 5% ADNOC 60% TOTAL 10% In production Block (April 15, 2015) BP 10% CNPC 8% NPIC 4% GS 3%

INPEX CORPORATION Annual Report 2020 61

014_0219287912106.indd 61 2021/06/30 10:52:09 In production Preparation for development Project Overview by Region Shale Gas Project in Canada Under exploration Hangingstone Block OP Operator project Key group company CANADA headquaters and ofﬁces 2 Abu Dhabi Offshore Oil Fields 1 Tight Oil Project INPEX has been engaged in the development and production of oil fields offshore Abu Dhabi in the United Arab Emirates since (Eagle Ford shale play) OP 1973. In January 2014, we extended our concession agreement for the Upper Zakum Oil Field by 15 years. Subsequently, in No- UNITED STATES OF AMERICA outon vember 2017, we extended the plan to increase the oil field’s production capacity to one million barrels per day and our conces- Keathley Canyon Block 874/875/918/919 (Lucius Oil Field, sion agreement by a further ten years. In February 2018, we newly acquired an interest in the Lower Zakum Oil Field concession an Antono Hadrian North Oil Field) and extended our existing concession agreements for the Satah and Umm Al-Dalkh oil fields by 25 years. INPEX is now engaged R1.4 Block 3 Keathley Canyon Block 921/965 in the development and production of four oil fields offshore Abu Dhabi, namely the Upper Zakum Oil Field, which is one of the (Perdido) Walker Ridge Block 881/925 MEXICO R2.4 Block 22 (Salina) largest in the world, as well as the Lower Zakum, Satah, and Umm Al-Dalkh oil fields.

The crude oil produced in the Upper Zakum, Satah and Umm Al-Dalkh oil fields is transported to Zirku Island, about 60 kilo- 2 Lucius Oil Field, Caraa Carabobo Block, meters from the Upper Zakum oil field. There, the crude oil is processed before being stored and shipped as Upper Zakum Hadrian North Oil Field, Project 3 and Exploration Blocks in Crude Oil. The crude oil produced in VENEZUELA SURINAME 0 60km the Gulf of Mexico the Lower Zakum Oil Field is transported to Das Island, about 90 kilometers Satah Field BRAZIL away, where it is processed before be- Das Island Upper Zakum Oil Field Lower Zakum Oil Field PERU ing stored and shipped as Das Crude BOLIVIA BM-ES-23 Oil. INPEX was appointed as the asset Abu Dhabi Ro e anero leader of the Lower Zakum Oil Field Zirku Island PARAGUAY concession by ADNOC. As asset leader, Umm Al-Dalkh Field ARGENTINA INPEX plays a leading role in advancing URUGUAY development and is working closely CHILE with ADNOC and its partners to lift the Oil ﬁeld United Arab Emirates oil field’s production capacity to 450 Subsea pipeline Zirku Island thousand barrels per day.

Contract area Project Target Production Venture company Interest owned (block) status Capacity (established) JODCO 10% ADNOC 60% Lower Zakum Oil Approximately 450 JODCO Lower Zakum Limited Consortium of three Indian companies 10% Field thousand barrels per day (January 25, 2018) CNPC 10% TOTAL 5% Eni 5% Upper Zakum Oil Approximately 1 million JODCO 12% ADNOC 60% Field In production barrels per day ExxonMobil 28% Japan Oil Development Co., Ltd. Approximately 25 (JODCO) Satah Field/ Umm thousand barrels per day (February 22, 1973) JODCO 40% ADNOC 60% Al-Dalkh Oil Fields / Approximately 20 thousand barrels per day

3 Onshore Block 4 INPEX participated in the first-ever block bid round conducted by the Abu Dhabi National Oil Company (ADNOC) in Abu Dhabi in the United Arab Emir- Onshore Block 4 ates in 2018 and was exclusively awarded Onshore Block 4 as the operator. Abu Dhabi IRAQ Work is currently under way to appraise the IRAN block and prepare for drilling, with drilling com- SAUDI ARABIA mencing in May 2021. SAUDI ARABIA OMAN UNITED ARAB OMAN Block EMIRATES 0 100km

Contract area Venture company Project status Interest owned (block) (established) JODCO Exploration Limited Onshore Block 4 Under exploration JODCO 100% (February 6, 2019)

Other projects Contract area Interest owned Project status Venture company (block) (*Operator) Angola Block 14 B.V 20% Chevron* 31% Block 14 Angola Block 14 B.V In production Sonangol 20% Eni 20% Galp 9% Offshore D.R. Congo Block Teikoku Oil (D.R. Congo) Co., Ltd. Teikoku Oil (D.R. Congo) 32.28% Perenco* 67.72% Teikoku Oil Algeria (El Ouar) 10.29% El Ouar I / II Block Under development Teikoku Oil Algeria (El Ouar) Co., Ltd. Sonatrach* 67.33% Eni 22.38% Under exploration (blocks where oil/gas Block 10 INPEX South Iraq, Ltd. INPEX South Iraq 40% Lukoil* 60% accumulations were confirmed)

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Hangingstone Block OP Operator project

Key group company INPEX’s Vision and Value Creation CANADA headquaters and ofﬁces

1 Tight Oil Project (Eagle Ford shale play) OP Americas UNITED STATES OF AMERICA outon Keathley Canyon INPEX is engaged as the operator in the Tight Oil Project in the State of Block 874/875/918/919 (Lucius Oil Field, an Antono Hadrian North Oil Field) Texas in the United States and the Lucius Deepwater Project in the U.S. R1.4 Block 3 Keathley Canyon Block 921/965 Gulf of Mexico (Lucius and Hadrian North Oil Fields). INPEX is also en- (Perdido) Walker Ridge Block 881/925 MEXICO R2.4 Block 22 (Salina) gaged in various exploration projects in the Mexican sector of the Gulf of 2 Lucius Oil Field, Caraa Mexico. Carabobo Block, Hadrian North Oil Field, Project 3 and Exploration Blocks in SURINAME the Gulf of Mexico VENEZUELA 1 Tight Oil Project San Antonio BRAZIL (Eagle Ford shale play) Dallas San Antonio Growth Strategies for Value Creation PERU Houston Gonzales BOLIVIA INPEX is steadily producing and marketing crude oil and gas BM-ES-23 0 40km in the Eagle Ford Shale Oil Project it acquired in the State of Ro e anero Wilson Texas in the United States in April 2019. Most of the assets are PARAGUAY located in Karnes County, Texas, considered to be a highly ARGENTINA Atascosa Karnes productive area for crude oil within the Eagle Ford shale play, URUGUAY Shale oil which has long hosted a concentration of tight oil and shale La Salle project CHILE Eagle Ford gas development activity. INPEX is the operator of the proj- Shale play ect, with the exception of a portion of the assets.

Contract area Project Venture company Production volume* Interest owned (block) status (established) Eagle Ford shale play, Crude oil: 4 Mbbld INPEX Eagle Ford LLC With the exception of some areas, INPEX In production southern Texas, US Natural gas: 8 MMcf/d (2019) holds a 100% interest as the Operator

* Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

2 Lucius Oil Field, Hadrian North Oil Field, and Exploration Blocks in the Gulf of Mexico The Basis of our Value Creation In August 2012, INPEX acquired an interest in the Lucius Deepwater Project in the U.S. UNITED STATES Gulf of Mexico from U.S.-based Anadarko Petroleum Corporation (currently Occidental Blocks 874/875/918/919 Lucius Oil Field, Petroleum Corporation) and joined the development and production activities in that oil Hadrian North Oil Field field. Oil and gas production at the Lucius Oil Field has proceeded steadily since its commencement in January 2015. The Hadrian North Oil Field is adjacent to the Lucius Oil R1.4 Block 3 Field and, with the unitization of the two oils fields in 2017, it was decided that the Hadri- MEXICO (Perdido) an North Oil Field will be jointly developed using the production facilities at the Lucius Oil Field. Crude oil and gas production at the Hadrian North Oil Field has proceeded R2.4 Block 22 (Salina)

steadily since its commencement in April 2019. In February 2021, INPEX additionally ac- 0 1,000km quired a portion (approximately 2.35%) of the participating interest previously held by ExxonMobil. INPEX is also conducting exploration activities in multiple blocks in the Mexican sector of the Gulf of Mexico. Performance and Financial Overview Project Venture company Contract area (block) Production volume** Interest owned (*Operator) status (established) Keathley Canyon Blocks INPEX Americas, Inc. 10.10769% Crude oil: 42 Mbbld INPEX Americas, Inc. 874/875/918/919 (Lucius Oil In production Occidental* 63.81835% Natural gas: 45 MMcf/d (May 30, 2003) Field, Hadrian North Oil Field) Other 26.07396% INPEX E&P Mexico PB-03, INPEX E&P Mexico PB-03 33.3333% R1.4 Block 3 (Perdido) Under S.A. de C.V. (August 6, 2018) Chevron* 33.3334% Pemex 33.3333% exploration INPEX E&P Mexico, INPEX E&P Mexico 35% R2.4 Block 22 (Salina) S.A. de C.V. (January 25, 2017) Chevron* 37.5% Pemex 27.5%

** Production on the basis of all fields and average rate of fiscal year ended December 31, 2020

Other projects Contract area Interest owned Project status Venture company (block) (*Operator) Japan Carabobo Japan Carabobo UK 5% CVP* 60% Chevron 34% Carabobo Project 3 Block Preparation for development UK Ltd. Suelpetrol 1% Under exploration (blocks INPEX Petroleo BM-ES-23 where oil/gas accumulations INPEX Petroleo Santos 15% Petrobras* 65% PTTEP 20% Santos Ltda. were confirmed) Production temporarily INPEX Gas British Shale Gas Project INPEX Gas British Columbia 40% CNOOC* 60% suspended Columbia Ltd. Japan Canada Oil Hangingstone Block In production Japan Canada Oil Sands* 75% CNOOC 25% Sands Ltd. Keathley Canyon Block 921/965 INPEX US Under exploration INPEX US Offshore 40% Occidental* 60% Walker Ridge Block 881/925 Offshore, LLC

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Akita Prefecture Project Overview by Region

INPEX is active in the Minami-Nagaoka Gas Field in Niigata Prefecture, one of the largest of Japan its kind in Japan and operates a natural gas pipeline extending approximately 1,500km and an LNG receiving terminal. East Japan Station Sekihara Gas Field (underground storage) Niigata City Naoetsu LNG Terminal Toyama Line Minami-Aga Oil Field Kashiwazaki City Minami-Kuwayama Oil Field Itoigawa City Toyama City Nagaoka City Toyama Prefecture Joetsu City Minami-Nagaoka Gas Field Niigata Shin Oumi Line Domestic Natural Gas Prefecture Domestic Natural Gas/ Nagano City Regasified LNG Echigo Line Mitsuke Tokyo Line Sea of Japan Sekihara City Gunma Matsumoto City Tomi BS* Gas Field Prefecture (underground storage) Fujioka BS* Shinetsu Shin Tokyo Line Honsen Matsumoto Line Karuizawa Nagaoka City Town Tochigi Prefecture Chino City Joetsu Nagano Prefecture Tomioka City Ryomo Line Kashiwazaki City Shinkansen Honjo City Line Kofu Line Sano City Yamanashi Iruma Line Konosu City Prefecture Kofu City Minami-Nagaoka Showa Second Suruga Trunk Line Head Office (Akasaka, Minato-ku) Gas Field City Ojiya City Sodeshi LNG Terminal Ome City Saitama Shizuoka Line Prefecture Adachi-ku, Tokyo Gas field Joetsu Line [Shizuoka Gas] Metropolitan Gotemba City Tokyo Shizuoka Prefecture Oil and gas fields Shizuoka City Regasified LNG Chiba City Fuji City Other project Technical Research Center Naruto Line Natural gas pipeline network (Kitakarasuyama, Setagaya-ku) Minamifuji Line *BS … Booster station Sammu City Naruto Gas Field [INPEX, Shizuoka Gas, Tokyo Gas] Major office Chiba Prefecture 0 100km In Japan, the natural gas produced from the INPEX-operated Minami-Nagaoka Gas Field (Niigata Prefecture), as well as the re-gasified LNG and other products received and manufactured at the Naoetsu LNG Terminal (Niigata Prefecture), which commenced operations in December 2013, is transported through a trunk pipeline network of approximately 1,500 kilometers stretching across the Kanto, Koshinetsu and Hokuriku regions, and sold to customers including city gas companies and large- scale plants located along the network. INPEX has experienced steady growth in sales of natural gas volume due to efforts to expand its supply infrastructure, as well as the highly environmentally friendly attributes of natural gas. Natural gas is expected to be used for a wide variety of applications, not only as a fuel for thermal energy but also as a fuel for onsite power generation and co-generation, as well Natural Gas Sales Volume in Japan

as a fuel for natural gas electric power plants and a raw material for chemical Note: 41.86 MJ per 1 m (100 million Nm/year) products. INPEX is targeting the early achievement of annual natural gas sales of 2.5 billion m3 and is eyeing an annual supply of 3.0 billion m3 as it uses ex- 21.7 21.2 20.7 isting infrastructure in tie-ups with other companies to ensure stable supply. 19.1 INPEX will remain focused on the sustainable improvement in the value of its 17.617.518.017.917.5 natural gas business in Japan, which plays a key role in the company’s global 15.1 gas value chain. In the Japanese energy market, INPEX faces challenging business conditions as competition continues to intensify. INPEX is focusing on developing its business to better address the diversifying needs of customers by implementing energy initiatives conducive to a net zero carbon society as well as measures to strengthen the company’s resilience. Specifically, in addition to making proposals for the conversion from other fuels to gas, INPEX is putting great effort into making proposals that utilize a dispersed 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/32019/12 2020/12 power generation system that increase energy efficiency and raises response (9 months) capabilities to natural disasters, entering the energy service business and making proposals for the introduction of carbon neutral gas. In addition to steadily promoting efforts related to the electric power sales business in cooperation with city gas providers serving as gas wholesalers, INPEX will proactively promote energy transition efforts. In tandem with the efforts of INPEX 4U Challenge Lab, which offers solutions to meet the expectations and needs of local communities, INPEX will also cooperate and coordinate with other companies, industry organizations and national and local governments in its sustained efforts to contribute to regional revitalization and the business development of its wholesalers. At the Naruto Gas Field in Chiba Prefecture, natural gas is being produced from water-soluble gas fields. In addition, after extracting the natural gas from underground water (brine water), the brine water is used to produce iodine, which is exported to Europe, the United States and elsewhere. Naoetsu LNG Terminal

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Akita Prefecture

East Japan Station Sekihara Gas Field (underground storage) Niigata City Naoetsu LNG Terminal Toyama Line Minami-Aga Oil Field Kashiwazaki City Minami-Kuwayama Oil Field Itoigawa City Toyama City Nagaoka City Toyama Prefecture Joetsu City Minami-Nagaoka Gas Field Niigata Shin Oumi Line Domestic Natural Gas Prefecture Domestic Natural Gas/ Nagano City Regasified LNG Echigo Line Mitsuke Tokyo Line Sea of Japan Sekihara City Gunma Matsumoto City Tomi BS* Gas Field Prefecture (underground storage) Fujioka BS* Shinetsu Shin Tokyo Line Honsen Matsumoto Line Karuizawa Nagaoka City Town Tochigi Prefecture Chino City Joetsu Nagano Prefecture Tomioka City Ryomo Line Kashiwazaki City Shinkansen Honjo City Line Financial and Kofu Line Sano City Yamanashi Konosu City Prefecture Iruma Line Minami-Nagaoka Corporate Information Kofu City Showa Second Suruga Trunk Line Head Office (Akasaka, Minato-ku) Gas Field City Ojiya City 66 Background Information: Sodeshi LNG Terminal Ome City Saitama Shizuoka Line Prefecture Adachi-ku, Tokyo Gas field Joetsu Line Oil and Gas Accounting [Shizuoka Gas] Metropolitan Policies and Practices Gotemba City Tokyo Shizuoka Prefecture Oil and gas fields 68 Management’s Discussion and Shizuoka City Regasified LNG Chiba City Fuji City Other project Technical Research Center Analysis of Financial Condition Naruto Line Natural gas pipeline network (Kitakarasuyama, Setagaya-ku) and Results of Operations Minamifuji Line *BS … Booster station Sammu City Naruto Gas Field [INPEX, Shizuoka Gas, Tokyo Gas] Major office 74 Consolidated Financial Chiba Prefecture Statements / Notes 0 100km 94 Independent Auditor’s Report 96 Subsidiaries and Affiliates 98 Business Risks 107 Oil and Gas Reserves and Production Volume 110 Corporate Information

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014_0219287912106.indd 65 2021/06/30 10:52:12 Background Information Oil and Gas Accounting Policies and Practices

ACCOUNTING METHODS FOR TYPES OF AGREEMENTS

The oil and gas business generates the bulk of consolidated net Recoverable costs under the PSCs sales revenues for the Company and its consolidated subsidiaries Exploration costs (the “Group”). Two types of agreements govern the Group’s oil The share of recoverable exploration costs incurred by the Group and gas operations. One is production sharing contracts (the under the terms of the relevant PSC is capitalized within “Recov- “PSCs”) and the other is concession agreements. The latter cate- erable accounts under production sharing.” gory also includes domestic mining rights, as well as overseas Development costs permits, licenses and lease agreements. The share of all development costs incurred by the Group that is recoverable under the terms of the relevant PSC is recorded within “Recoverable accounts under production sharing.” 1. Production sharing contracts Production costs Any operating costs incurred during the production phase that Production sharing contract is an agreement by which one or sev- are recoverable under the relevant PSC are initially recorded with- eral oil and gas development companies serve as contractors that in “Recoverable accounts under production sharing.” undertake at their own expense exploration and development Administrative expenses work on behalf of the governments of oil-producing countries or Any administrative expenses that are recoverable under the rele- national oil companies and receive production from the projects vant PSC are recorded within “Recoverable accounts under pro- as cost recovery and compensation. duction sharing.”

Cost recovery and production sharing As noted, in “Cost recovery and production sharing,” these costs The PSCs determine the allocation of oil and gas production are recovered either as capital or operating expenditures. among the host country’s government (or related entity) and the contractors such as the Group. The allocation formula generally Non-recoverable costs under the PSCs differs according to the terms of the individual PSC. In the case of Acquisition costs PSC for major projects currently in production, total production Costs relating to the acquisition of rights (recorded as intangible volume is allocated quarterly between two portions. assets under “Exploration and development rights”) for any projects governed by the PSCs that are entirely in the exploration (1) “Cost recovery portion”: This is the oil and gas equivalent phase are expensed as incurred and amortized. Expenditures or of costs incurred at the quarterly period under the PSCs with costs relating to the acquisition of rights to projects already in the the governments of oil-producing countries. The equivalents development or production phase are capitalized within “Explo- are determined based on the current unit prices of crude oil ration and development rights” and amortized based on the and natural gas and allocated between the contractors alone. unit-of-production method. These amortization costs are record- The quantity of oil and gas in the “cost recovery portion” de- ed within “Depreciation and amortization.” Cost recovery provi- creases as unit prices increase, whereas that of the “equity sions in the PSCs do not generally cover these expenditures. portion” (explained below) rises. If the actual production for the quarterly period is insuffi- cient to cover the quantity of oil and gas equivalent calculat- 2. Concession agreements ed for the cost recovery portion, the latter is capped at actual production and any surplus amount is carried forward to the Concession agreement is an agreement or authorization (includ- following quarterly period, as stipulated in the PSC. ing mining rights awarded in Japan, as well as overseas permits, licenses and lease agreements) by which a government entity or (2) “Equity portion”: This is any residual production after the a national oil company of the country directly awards mining cost recovery portion has been allocated. It is allocated be- rights to an oil company. The oil company makes its own invest- tween the host country’s government and the contractors ment in exploration and development and has the right of dispo- based on agreed percentages. sition of the oil and gas it extracts. Revenues are returned to the host country in the form of royalties, taxes, etc., on sales. The calculation of items in the income statement based on the above PSC-related considerations is as follows: Acquisition costs • The Group records as net sales its share of total sales relating Costs relating to the acquisition of rights (recorded as intangible to the oil and gas production that is allocated to contractors assets under “Mining rights”) for projects governed by conces- under the PSCs. sion agreements are treated in the same way as projects gov- • The Group books as cost of sales the portion of “Recoverable erned by the PSCs, as described above. accounts under production sharing” that is recovered through Exploration costs the allocation of its share of the “cost recovery portion.” The Group’s share of exploration costs is expensed as incurred. Development costs The Group’s share of any development costs related to mining facilities is capitalized within tangible fixed assets. The depreciation

Production sharing contracts Concession agreements

Costs Assets on Balance Sheet Statement of Income Costs Assets on Balance Sheet Statement of Income

Project under exploration phase Exploration Provision for allowance for Exploration recoverable accounts under All exploration costs are Exploration expenses costs costs expensed as incurred Recoverable accounts production sharing under production sharing Cost of sales Development (Recovery of recoverable Development Cost of sales Project under development Tangible fixed assets (Depreciation and costs and production phase accounts under production costs sharing (capital expenditures)) amortization) Recoverable accounts under production sharing Cost of sales Production costs (Recovery of recoverable accounts Production costs All production costs are Cost of sales (Operating costs) under production sharing (Operating costs) expensed as incurred (Operating expenses) Project under development (operating expenditures)) and production phase Selling, general and Cost of sales Acquisition Exploration and administrative expenses Acquisition costs costs Mining rights (Depreciation and development rights (Depreciation and amortization) amortization)

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of tangible fixed assets that are governed by concession agree- Production costs ments is computed primarily using the unit-of-production method The Group’s share of operating costs that are incurred during the for mining assets located outside Japan and the straight-line production phase is recorded within the cost of sales. method for domestic facilities. These depreciation expenses are Administrative expenses recorded within the cost of sales. The Group’s share of administrative expenses is expensed as incurred.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES Growth Strategies for Value Creation The Group’s consolidated financial statements are prepared in reasonable, changes to estimates of the present value of retire- conformity with Japanese GAAP. The preparation of these finan- ment costs which are caused by the factors such as changes to re- cial statements requires the application of estimates, judgments tirement plans, escalating prices of drilling equipment and and assumptions that affect the reported values of assets and lia- materials and others could significantly affect future operating bilities at the date of the financial statements, as well as the er - results. ported amounts of revenues and expenses for the reporting period. Actual results may differ from the previously estimated or Allowance for investments in exploration companies assumed values. An allowance is recorded to provide for probable losses on in- Accounting estimates pursuant to the preparation of the con- vestments made by the Group in entities engaged in oil and gas solidated financial statements are deemed critical if the degree of activities, as estimated based on the net assets of such entities. uncertainty associated with such estimates is high, or if rational Although the Group believes that the assessments and estimates changes to such estimates could exert a material impact on the fi- relating to such investments are reasonable, changes in actual nancial condition or operating results. Critical accounting policies production volumes, prices or foreign exchange rates could sig- and estimates relating to the financial presentation are outlined nificantly affect future operating results. below. Provision for exploration projects Impairment loss on fixed assets A provision for exploration projects is provided for future expen- The Group groups mining area and other assets as a basic unit ditures as of the fiscal year-end of consolidated subsidiaries at the that generates cash inflows independently of other groups of as- exploration stage based on a schedule of investments in explora- sets. If any indication that an asset may be impaired exists, the tion. Although the Group believes that assessments relating to The Basis of our Value Creation Group shall estimate the future cash flows, and if the ecoverabler the schedule of investments are reasonable, changes to the amount is lower than the carrying amount, the impairment loss is schedule could significantly affect future operating results. recognized. Although the Group estimates prices, foreign exchange rates, reserves and others based on reasonable assump- Provision for loss on business tions, any changes in these assumptions could significantly affect A provision for loss on business is provided for future potential future operating results. loss on crude oil and natural gas development, production and sales business individually estimated for each project. Although Allowance for recoverable accounts under assessments and accounting estimates are made on a reasonable production sharing basis, actual operating results can change depending on the Any expenditures made during the exploration, development and business status. production phases of projects governed by the PSCs are capitalized within “Recoverable accounts under production sharing” if Deferred tax assets they are recoverable under the relevant PSC. An allowance equal Deferred tax assets reflect temporary differences (including net to exploration costs is recorded within “Allowance for recoverable operating loss carry-forwards) arising mainly from the write-down accounts under production sharing” to provide for potential loss- of exploration expenditures, foreign taxes payable and excess of es from unsuccessful exploration. This allowance typically remains tax allowable depreciation. Valuation allowances are provided unchanged on the balance sheet until it exceeds the residual bal- once it is judged that the non-realization of deferred tax assets ance of exploration costs that previously had been capitalized has become the more probable outcome. The effect of foreign Performance and Financial Overview within “Recoverable accounts under production sharing” during tax credits is taken into account in the calculation of such valua- the exploration phase. Reflecting the uncertainty associated with tion allowances. The realization of deferred tax assets is principal- oil and gas projects, an allowance is recorded within “Allowance ly dependent on the generation of sufficient taxable income, for recoverable accounts under production sharing” to provide based on the available information. Adjustments to deferred tax for probable losses on development activities, as individually esti- assets could be required if future taxable income was lower than mated for each project. Although assessments and accounting expected due to market conditions, foreign exchange rate fluctu- estimates are made on a reasonable basis, actual operating ations or poor operating performance. results can change depending on the project status. Retirement benefits to employees Unit-of-production method Retirement benefit obligation to employees are recognized at the Overseas mining facilities, mining rights and exploration and de- net present value of future obligations as of the fiscal year-end, velopment rights that are acquired during the development and taking into account any periodic benefit costs that have arisen production phase are mainly depreciated or amortized based on during the period. The calculation of retirement benefit obliga- the unit-of-production method. This approach requires the esti- tions and retirement benefit expenses is based on various mation of reserves. Although the Group believes that the assess- actuarial assumptions, including the discount rate, employee ment of reserves is done in an appropriate manner, any changes turnover and retirement rates, remuneration growth rates, and the in these estimates could significantly affect future operating long-term expected return on plan assets. Future operating results. results could be significantly affected by deviation between the base assumptions and actual results or the revision of such Asset retirement obligations assumptions which were to generate actuarial gains or losses. Asset retirement obligations are recorded by a reasonable estimate of the present value of retirement costs incurred upon ter- Goodwill mination of the operation and production with respect to oil and The excess cost over underlying net assets excluding non-con- gas production facilities, based on the oil and gas contracts or trolling interests as fair value as of their dates of acquisition is ac- laws and regulations within the countries in which the Group op- counted for as goodwill and amortized over 20 years on erates or has working interests. Although the Group believes that a straight-line method. such estimates of the present value of retirement costs are

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BUSINESS ENVIRONMENT

The Group unified its fiscal year-ends to December 31, effective oil production due to the downturn in oil prices. Brent crude rose from the year ended December 31, 2019. Accordingly, the Com- to US$45.86 by late August. Crude oil prices weakened through pany and its domestic subsidiaries whose former fiscal years end- mid-November to around US$40, as economic activity was re- ed on March 31 changed their year-ends to December 31. stricted in some regions and cities in Europe and the U.S. with the Increases or decreases displayed hereinafter are based on the renewed spread of COVID-19. Prices entered an upward trend comparison to the corresponding period of the previous year, from late November however, against the backdrop of an antici- which is comprised of the twelve-month results (January 1, 2019– pated extension by OPEC+ of the current level of production cuts December 31, 2019). beyond January 2021, and the emergence of highly effective During the year ended December 31, 2020, the global econo- COVID-19 vaccines under development by pharmaceutical com- my experienced a slowdown in economic activity in countries panies. Brent crude ended the year at US$51.80 per barrel. In Ja- around the world impacted by the spread of the novel coronavi- pan, prices of crude oil and petroleum products correlated with rus (COVID-19), and business conditions rapidly deteriorated. The the fluctuations ininternational crude oil prices. The Group’s aver- Japanese economy also experienced a rapid contraction in cor- age crude oil sales price for the year ended December 31, 2020 porate earnings and consumer spending as well as a deteriora- reflected this shift and fell to US$40.31 per barrel, down US$25.01 tion in employment following the declaration of a state of from the corresponding period of the previous year. emergency in April. At present, although exports, production and The foreign exchange market, another important factor that consumption are showing signs of recovery thanks to a phased affects the business of the Group, began to trade at ¥108 level increase in socioeconomic activity, the outlook for the future re- against the U.S. dollar. In February, Japanese Yen climbed to ¥112 mains uncertain, due to concerns of a re-spread of COVID-19. level against the U.S. dollar due to positive outcomes of the US Of the international crude oil price indices, which significantly economic statistics, but afterwards the foreign exchange market influence the financial performance of the Group, Brent crude (on continued volatile fluctuations due to the panic of the financial a near-term closing price basis), considered a benchmark index market after the expansion of COVID-19. In June, the yen for crude oil, started at US$66.25 per barrel on January 1, 2020. dropped to ¥109 level against the U.S. dollar after the number of Crude oil prices trended downward from late January 2020, as new patients of COVID-19 started to decrease globally, and then awareness grew on the negative impact of the emerging spread the financial market got back stability. However, the yen appreci- of COVID-19, primarily in China, on the global economy. Then on ated again against the U.S. dollar through end of the year after March 6, a breakdown in talks between OPEC and non-OPEC Federal Reserve Board indicated the guidance that they extend countries (OPEC+) to jointly extend production cuts beyond April the monetary easing policy. Finally, TTM as of December 31, 2020, drove crude oil prices into freefall. Oil prices fell to less than closed at ¥103.52 against the U.S. dollar which turned out to be US$25 per barrel at the end of March. Prices were weighed down ¥6.03 higher than that on December 31, 2019. Reflecting these further as the spread of COVID-19 led to a slowdown in economic situations, the average exchange rate applied for sales transac- activity around the world, and Brent crude sank to US$19.33 by tions for the Group for the year ended December 31, 2020 was the end of April. Economic activity gradually resumed in China ¥106.85 against the U.S. dollar, which is ¥2.20 higher than that of and elsewhere from the middle of the year, and the balance of the corresponding period of the previous year. supply and demand for crude oil improved, against the backdrop of joint production cuts by OPEC+ and the U.S. reducing crude

PERFORMANCE OVERVIEW

Net sales The decrease of ¥400.1 billion in net sales was mainly derived Consolidated net sales for the year ended December 31, 2020 from the following factors: a decrease in sales volume pushing decreased by ¥400.1 billion, or 34.2%, to ¥771.0 billion from sales down of ¥17.4 billion, a decrease in unit sales price pushing ¥1,171.2 billion for the corresponding period of the previous year sales down of ¥365.5 billion, the appreciation of the Japanese yen due to decreases in sales price and sales volume of crude oil. against the U.S. dollar pushing sales down of ¥13.4 billion, and Compared with the corresponding period of the previous year, a decrease in net sales excluding crude oil and natural gas of ¥3.6 net sales of crude oil decreased by ¥366.0 billion, or 42.0%, to billion. ¥505.5 billion from ¥871.5 billion, and net sales of natural gas decreased by ¥30.4 billion, or 10.8%, to ¥250.5 billion from ¥281.0 Cost of sales billion. Cost of sales for the year ended December 31, 2020, decreased The sales volume of crude oil decreased by 5,033 thousand by ¥71.2 billion, or 13.9%, to ¥439.8 billion from ¥511.1 billion for barrels, or 4.1%, to 117,282 thousand barrels compared with the the corresponding period of the previous year. corresponding period of the previous year. The sales volume of natural gas increased by 47 billion cubic feet (Bcf), or 11.3%, to Exploration expenses 467 Bcf compared with the corresponding period of the previous Exploration expenses for the year ended December 31, 2020, de- year. Of this, the sales volume of overseas natural gas increased creased by ¥14.5 billion to ¥9.0 billion from ¥23.5 billion for the by 50 Bcf, or 14.7%, to 390 Bcf compared with the corresponding corresponding period of the previous year. This was mainly due to period of the previous year. The sales volume of domestic natural a decrease in exploration activities in the Middle East & Africa re- gas decreased by 71 million m3, or 3.3%, to 2,074 million m3 gion and the America region. (equivalent to 77 Bcf) compared with the corresponding period of the previous year. The average sales price of overseas crude oil Selling, general and administrative expenses was US$40.31 per barrel, a decrease of US$25.01, or 38.3%, com- Selling, general and administrative expenses for the year ended pared with the corresponding period of the previous year. The December 31, 2020, decreased by ¥3.3 billion, or 5.4%, to ¥58.8 average sales price of overseas natural gas was US$3.61 per billion from ¥62.1 billion for the corresponding period of the pre- thousand cubic feet (Mcf), a decrease of US$0.72, or 16.6%, com- vious year. pared with the corresponding period of the previous year. The average sales price of domestic natural gas was ¥46.93 per m3, Depreciation and amortization a decrease of ¥7.69 per m3, or 14.1%, compared with the Depreciation and amortization for the year ended December 31, corresponding period of the previous fiscal year. 2020, decreased by ¥0.1 billion, or 1.2%, to ¥14.8 billion from

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(Millions of yen, %) Corresponding Period of the Previous 2020/12 Change Ratio Year Net sales ¥1,171,203 ¥ 771,046 ¥(400,156) (34.2)% Crude oil 871,557 505,517 (366,039) (42.0) Natural gas 281,044 250,592 (30,452) (10.8) Other 18,601 14,937 (3,664) (19.7) Cost of sales 511,150 439,852 (71,297) (13.9) Growth Strategies for Value Creation Gross profit 660,052 331,194 (328,858) (49.8) Exploration expenses 23,588 9,074 (14,514) (61.5) Selling, general and administrative expenses 62,190 58,815 (3,374) (5.4) Depreciation and amortization 15,020 14,832 (187) (1.2) Operating income 559,254 248,471 (310,783) (55.6) Other income 63,351 63,803 452 0.7 Interest income 3,173 33,480 30,307 — Dividend income 7,585 6,733 (851) (11.2) Equity in earnings of affiliates 36,673 — (36,673) (100.0) Guarantee commission received 300 6,650 6,349 — Foreign exchange gain 810 — (810) (100.0) Other 14,807 16,938 2,130 14.4 Other expenses 44,201 244,880 200,678 — Interest expense 27,762 19,092 (8,670) (31.2) Loss on valuation of investment securities 3,497 6,556 3,058 87.4 Equity in losses of affiliates — 12,999 12,999 — The Basis of our Value Creation Provision for allowance for recoverable accounts 1,701 2,566 864 50.8 under production sharing Provision for exploration projects 210 2 (207) (99.0) Foreign exchange loss — 8,209 8,209 — Impairment loss 6,283 189,940 183,657 — Other 4,745 5,514 768 16.2 Income before income taxes 578,404 67,394 (511,009) (88.3) Income taxes 419,248 171,200 (248,048) (59.2) Net income (loss) 159,155 (103,806) (262,961) — Net income (loss) attributable to non-controlling interests (8,161) 7,893 16,054 — Net income (loss) attributable to owners of parent ¥ 167,316 ¥(111,699) ¥(279,016) — %

¥15.0 billion for the corresponding period of the previous year. Income taxes The Group records depreciation expenses for production facilities Total current income taxes and deferred income taxes for the year Performance and Financial Overview that are covered by concession agreements as cost of sales. In ended December 31, 2020, decreased by ¥248.0 billion, or 59.2%, addition, under its accounting treatment of the PSCs, the Group to ¥171.2 billion from ¥419.2 billion for the corresponding period records capital expenditures as “Recoverable accounts under of the previous year. The Group pays the majority of its taxes out- production sharing” instead of capitalizing these costs within tan- side Japan. In addition to the high corporate tax rates imposed in gible fixed assets and depreciating them. Costs that are recov- a number of regions, the Group is generally unable to deduct ex- ered in any given year based on the terms of the PSCs are penses incurred in Japan for such taxes. Despite the positive ef- included in the cost of sales. fects attributable to the application of the foreign tax credit system, this situation resulted in a high effective income tax rate. Operating income As a result of the above, operating income for the year ended Net income (loss) attributable to non-controlling interests December 31, 2020, decreased by ¥310.7 billion, or 55.6%, to Net income attributable to non-controlling interests for the year ¥248.4 billion from ¥559.2 billion for the corresponding period of ended December 31, 2020, was ¥7.8 billion. Meanwhile, net loss the previous year. attributable to non-controlling interests for the corresponding period of the previous year, was ¥8.1 billion. Other income Other income for the year ended December 31, 2020, increased Net income (loss) attributable to owners of parent by ¥0.4 billion, or 0.7%, to ¥63.8 billion from ¥63.3 billion for the As a result of the above, net loss attributable to owners of parent corresponding period of the previous year. for the year ended December 31, 2020, was ¥111.6 billion. Mean- while, net income attributable to owners of parent for the corre- Other expenses sponding period of the previous year, was ¥167.3 billion. Other expenses for the year ended December 31, 2020, increased by ¥200.6 billion to ¥244.8 billion from ¥44.2 billion for the corresponding period of the previous year. This was mainly due to an increase in impairment loss.

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Total assets as of December 31, 2020, decreased by ¥215.4 billion, liabilities increased by ¥142.5 billion, or 12.4%, to ¥1,293.8 billion or 4.4%, to ¥4,634.5 billion from ¥4,849.9 billion as of December from ¥1,151.3 billion as of December 31, 2019. 31, 2019. Current assets decreased by ¥32.7 billion, or 7.8%, to Net assets decreased by ¥295.8 billion, or 9.0%, to ¥3,001.3 ¥387.0 billion from ¥419.8 billion due to a decrease in accounts billion from ¥3,297.1 billion as of December 31, 2019. Total share- receivable—trade and others. Fixed assets decreased by ¥182.7 holders’ equity decreased by ¥155.5 billion, or 5.7%, to ¥2,567.2 billion, or 4.1%, to ¥4,247.4 billion from ¥4,430.1 billion as of De- billion from ¥2,722.7 billion as of December 31, 2019. Total accu- cember 31, 2019, due to decreases in tangible fixed assets and mulated other comprehensive income decreased by ¥148.7 bil- intangible fixed assets and others. lion, or 46.8%, to ¥169.2 billion from ¥317.9 billion as of December Meanwhile, total liabilities increased by ¥80.3 billion, or 5.2%, 31, 2019, and non-controlling interests increased by ¥8.3 billion, to ¥1,633.1 billion from ¥1,552.8 billion as of December 31, 2019. or 3.3%, to ¥264.7 billion from ¥256.4 billion as of December 31, Current liabilities decreased by ¥62.1 billion, or 15.5%, to ¥339.2 2019. billion from ¥401.4 billion as of December 31, 2019. Long-term

INVESTMENT AND FUNDING

Investments in upstream oil and gas projects Continuous exploration for new reserves of crude oil and natural • Discrepancies exist between the standards stipulated in U.S. gas is essential for stable earnings of the Group. The information FASB Accounting Standards Codification opicT 932, “Extractive in this section on upstream oil and gas investments is based on Industries—Oil and Gas (Topic 932),” and both the Group’s the data reported by project operators relating to exploration ex- definitions of exploration and development expenditures and penditures, development expenditures and operating expenses. the standards used in preparing the following tables. The fol- The Group’s expenditure categories are defined as follows: lowing is a partial list of the discrepancies between the Group’s • Exploration expenditures include the costs of exploratory drill- accounting policies and Topic 932. ing and any geological or geophysical studies. The costs of lo- – Group expenditures relating to the PSC-governed joint ven- cal personnel and office operations and related administrative tures where the Group is not the operator are disclosed on expenses are also included in this category if a project (or con- a cash basis rather than an accrual basis as required by Topic 932. tract area) is in the exploration phase. – The tables below have been prepared based on the cost defi- • Development expenditures include the costs of development nitions used by operators in their reporting, which may not be drilling, any production facilities and acquisition of participat- consistent with Topic 932. ing interests. – Topic 932 requires that administrative costs not directly related • Operating expenses include the costs of well operations, main- to exploration and development activities be excluded from tenance and the supervision of production activities. This cate- exploration and development expenditures, whereas such ad- gory also includes the administrative expenses for the project ministrative costs are not necessarily excluded from those ex- (or contract area) if it contains a field in active production. penditures under the Group’s accounting policies.

The table below shows the Group’s exploration and development costs and other expenditures (excluding capitalized interest costs and asset retirement costs corresponding to asset retirement obligations capitalized under fixed assets) by segment for the years ended Decem- ber 31, 2019 and 2020. (Millions of yen) Eurasia Middle East & Japan Asia & Oceania Americas Total Year ended December 31, 2019 (Europe & NIS) Africa INPEX CORPORATION and Consolidated Subsidiaries Exploration ¥1,334 ¥ 3,639 ¥ (485) ¥ 8,499 ¥ 5,823 ¥ 18,812 Development 888 62,130 19,025 49,733 39,837 171,617 Subtotal 2,223 65,770 18,540 58,233 45,661 190,430 Equity-method affiliates Exploration — — 13 — — 13 Development — 2,136 1,526 1,910 138 5,711 Subtotal — 2,136 1,539 1,910 138 5,725 Other capital expenditures* 2,510 50,349 — — — 52,859 Total ¥4,734 ¥118,256 ¥20,080 ¥60,144 ¥45,799 ¥249,014

* Other capital expenditures include the construction costs of domestic gas infrastructure, the Group’s share of investment in the Ichthys downstream entity (Ichthys LNG Pty Ltd, an equity-method affiliate) and others.

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(Millions of yen) Eurasia Middle East & Japan Asia & Oceania Americas Total Year ended December 31, 2020 (Europe & NIS) Africa INPEX CORPORATION and Consolidated Subsidiaries Exploration ¥ 930 ¥ 3,961 ¥ (589) ¥ 5,682 ¥ 793 ¥ 10,777 Development 2,061 62,262 24,617 52,386 13,532 154,860 Subtotal 2,992 66,223 24,027 58,069 14,325 165,638

Equity-method affiliates Growth Strategies for Value Creation Exploration — — 26 — — 26 Development — 1,470 1,653 917 — 4,042 Subtotal — 1,470 1,680 917 — 4,069 Other capital expenditures* 2,706 12,546 — — — 15,252 Total ¥5,698 ¥80,240 ¥25,707 ¥58,987 ¥14,325 ¥184,959 * Other capital expenditures include the construction costs of domestic gas infrastructure, the Group’s share of investment in the Ichthys downstream entity (Ichthys LNG Pty Ltd, an equity-method affiliate) and others.

Total investments for the year ended December 31, 2020, decreased by ¥64.0 billion, or 25.7%, to ¥184.9 billion (including ¥4.0 billion for exploration and development by equity-method affiliates) from ¥249.0 billion for the year ended December 31, 2019. This was mainly due to a decrease in expenditures in the Asia & Oceania region and the America region.

The table below shows the Group’s operating expenses by segment for the years ended December 31, 2019 and 2020. (Millions of yen, %) 2019/12 2020/12 The Basis of our Value Creation INPEX CORPORATION and Consolidated Subsidiaries Japan ¥ 9,045 9.9% ¥10,931 9.6% Asia & Oceania 30,842 33.8 44,393 38.9 Eurasia (Europe & NIS) 12,542 13.7 14,285 12.5 Middle East & Africa 37,367 40.9 41,744 36.6 Americas 1,576 1.7 2,709 2.4 Subtotal 91,374 100.0 114,065 100.0 Equity-method affiliates Asia & Oceania 342 6.8 2,972 49.7 Eurasia (Europe & NIS) 283 5.7 460 7.7 Middle East & Africa 2,468 49.2 2,548 42.6 Americas 1,924 38.3 — — Performance and Financial Overview Subtotal 5,018 100.0 5,981 100.0 Total ¥96,393 —% ¥120,046 —%

INPEX CORPORATION Annual Report 2020 71

015_0219287912106.indd 71 2021/06/29 23:29:47 Analysis of recoverable accounts under production sharing For upstream projects governed by the PSCs, the Group’s share of costs arising during the exploration, development and production phases is capitalized under “Recoverable accounts under production sharing.” The following table shows the changes in the balance of “Recoverable accounts under production sharing” during the years ended December 31, 2019 and 2020. (Millions of yen) 2019/12 2020/12 Balance at beginning of the year ¥568,059 ¥568,377 Add: Exploration costs 3,203 3,584 Development costs 27,054 28,865 Operating expenses 13,078 17,188 Other 7,781 6,184 Less: Cost recovery—capital expenditures (32,261) (34,691) Cost recovery—operating expenditures (12,255) (13,965) Other (6,283) — Balance at end of the year 568,377 575,544 Allowance for recoverable accounts under production sharing at end of the year ¥ (66,897) ¥ (69,441)

The amount posted as “Cost recovery—operating expenditures” Operating expenses for the year ended December 31, 2020, in recoverable accounts under production sharing is greater than was ¥17.1 billion. This was mainly due to operating expenses in that posted as operating expenses. Along with operating expens- the Eurasia region. es, this is because a portion of the exploration and development Cost recovery for the year ended December 31, 2020, was costs, which are incurred and recoverable within the year, is in- ¥48.6 billion. This was mainly due to cost recovery in the Eurasia cluded in the “Cost recovery—operating expenditures” account. region. Exploration costs for the year ended December 31, 2020, was The allowance for recoverable accounts under production ¥3.5 billion. This was mainly due to exploration expenditures in sharing as of December 31, 2020, increased compared with De- the Middle East & Africa region. cember 31, 2019. This was mainly due to additional provision for Development costs for the year ended December 31, 2020, allowance in connection with exploration expenditures. was ¥28.8 billion. This was mainly due to development expenditures in the Asia & Oceania region and the Eurasia region.

Funding sources and liquidity Oil and gas exploration and development projects, as well as the from export credit agencies and commercial banks for project fi- construction of gas infrastructure, require significant funding. The nancing and others. In the year ended December 31, 2020, in ad- Group relies on cash flow derived from internal reserves, together dition to development activities, the Group borrowed from with external sources, to procure funds. The Group’s basic policy Development Bank of Japan Inc. and Japan Bank for International is to utilize internal cash flow and external equity financing to fund Cooperation in order to strengthen the Group’s financial founda- exploration projects and to utilize internal cash flow and external tion under the environment with low oil prices, and also tried to loans to fund development projects and the construction of gas reduce financial costs by the refinance of Ichthys LNG Project infrastructure. The Group currently receives loans from the Japan Finance. Bank for International Cooperation, Japanese commercial banks The Group’s basic liquidity policy is to maintain sufficient cash and others. The Japan Oil, Gas and Metals National Corporation on hand to provide for steep falls in oil and gas prices. In addi- (JOGMEC) guarantee system covers these loans. In addition, the tion, the Group has concluded commitment line contracts with Development Bank of Japan and various Japanese commercial multiple financial institutions to secure the line of credit. banks provide loans for the construction of domestic gas As of December 31, 2020, total of short-term borrowings and infrastructure. long-term debt was ¥12.3 billion, and total of cash and cash The Ichthys downstream entity (Ichthys LNG Pty Ltd, an equi- equivalents was ¥1.7 billion. ty-method affiliate), as the borrower, has utilized external loans

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Cash flows Cash flows for the years ended December 31, 2019 and 2020, are summarized as follows: Due to the change of the year-end, the year ended December 31, 2019 was a nine-month transition period. Therefore, the change from the previous year is not displayed. (Millions of yen) 2019/12 2020/12 Net cash provided by (used in) operating activities ¥ 274,730 ¥ 292,915 Net cash provided by (used in) investing activities (288,740) (417,189) Net cash provided by (used in) financing activities (48,615) 126,747 Growth Strategies for Value Creation Cash and cash equivalents at end of the period ¥ 173,774 ¥ 172,405

Net cash provided by (used in) operating activities Net cash provided by (used in) financing activities Net cash provided by operating activities is ¥292.9 billion mainly Net cash provided by financing activities is ¥126.7 billion mainly due to impairment loss and depreciation and amortization (non- due to proceeds from long-term debt. cash), despite income taxes paid.

Net cash provided by (used in) investing activities Net cash used in investing activities is ¥417.1 billion mainly due to payments for purchases of long-term loans receivable and tangible fixed assets. The Basis of our Value Creation Performance and Financial Overview

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015_0219287912106.indd 73 2021/06/29 23:29:47 Consolidated Balance Sheet INPEX CORPORATION and Consolidated Subsidiaries December 31, 2020

Thousands of Millions of yen U.S. dollars (Note 3) ASSETS 2019/12 2020/12 2020/12 Current assets Cash and cash equivalents (Note 6) ¥ 173,774 ¥ 172,405 $ 1,665,426 Time deposits 23 10,573 102,134 Accounts receivable—trade (Notes 4 and 6) 148,765 83,810 809,602 Inventories (Note 6) 38,987 34,299 331,327 Accounts receivable—other (Note 4) 47,057 40,748 393,624 Other (Note 6) 24,962 57,481 555,264 Less allowance for doubtful accounts (13,768) (12,225) (118,093) Total current assets 419,802 387,093 3,739,306

Tangible fixed assets Buildings and structures 401,995 402,332 3,886,514 Wells (Note 6) 609,007 651,938 6,297,700 Machinery, equipment and vehicles (Note 6) 1,636,502 1,679,940 16,228,168 Land (Note 6) 18,596 18,591 179,588 Construction in progress (Note 6) 552,866 385,405 3,723,000 Other 29,540 50,688 489,644 3,248,507 3,188,897 30,804,646 Less accumulated depreciation and amortization (973,135) (1,119,114) (10,810,606) Total tangible fixed assets 2,275,372 2,069,783 19,994,039

Intangible assets Goodwill (Note 17) 42,206 35,445 342,397 Exploration and development rights 155,108 156,787 1,514,557 Mining rights 333,246 245,016 2,366,846 Other 4,770 4,587 44,310 Total intangible assets 535,330 441,837 4,268,131

Investments and other assets Recoverable accounts under production sharing 568,377 575,544 5,559,737 Less allowance for recoverable accounts under production sharing (66,897) (69,441) (670,797) 501,479 506,102 4,888,929 Investment securities (Notes 4, 5 and 6) 378,527 297,867 2,877,386 Long-term loans receivable (Note 6) 718,976 911,424 8,804,327 Deferred tax assets (Note 7) 7,471 10,237 98,889 Other (Note 6) 16,247 13,231 127,811 Less allowance for doubtful accounts (818) (600) (5,795) Less allowance for investments in exploration (2,395) (2,460) (23,763) Total investments and other assets 1,619,489 1,735,804 16,767,812 Total fixed assets 4,430,192 4,247,424 41,029,984 Total assets ¥4,849,995 ¥4,634,518 $44,769,300

See accompanying notes to consolidated financial statements.

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Thousands of Millions of yen U.S. dollars (Note 3) LIABILITIES AND NET ASSETS 2019/12 2020/12 2020/12 Current liabilities Accounts payable—trade ¥ 21,798 ¥ 15,090 $ 145,768 Short-term borrowings and current portion of long-term debt 166,831 175,133 1,691,779 (Notes 4, 6 and 12) Income taxes payable (Note 7) 43,190 12,676 122,449 Accounts payable—other 97,241 70,478 680,815

Accrued bonuses 1,334 1,415 13,668 Growth Strategies for Value Creation Accrued bonuses to officers 108 54 521 Provision for loss on business 8,635 9,351 90,330 Provision for exploration projects 11,808 9,496 91,731 Asset retirement obligations (Note 16) 780 1,475 14,248 Other 49,754 44,116 426,159 Total current liabilities 401,483 339,288 3,277,511

Long-term liabilities Long-term debt (Notes 4, 6, 11 and 12) 950,948 1,059,713 10,236,794 Deferred tax liabilities (Note 7) 44,305 32,594 314,857 Provision for stocks payment 42 71 685 Accrued special repair and maintenance 537 577 5,573 The Basis of our Value Creation Liability for retirement benefits(Note 15) 8,011 8,158 78,806 Asset retirement obligations (Note 16) 136,101 172,147 1,662,934 Other 11,388 20,627 199,256 Total long-term liabilities 1,151,334 1,293,890 12,498,937 Total liabilities 1,552,818 1,633,178 15,776,448

Net assets (Note 9) Common stock 290,809 290,809 2,809,205 Authorized 2019/12 — 3,600,000,001 shares 2020/12 — 3,600,000,001 shares Issued 2019/12 — 1,462,323,601 shares

2020/12 — 1,462,323,601 shares Performance and Financial Overview Capital surplus 674,374 674,374 6,514,431 Retained earnings 1,763,034 1,607,524 15,528,632 Less: Treasury stock 2019/12 — 2,121,916 shares (5,432) (5,428) (52,434) 2020/12 — 2,119,096 shares Total shareholders’ equity 2,722,786 2,567,279 24,799,835 Unrealized holding gain (loss) on securities 5,570 2,091 20,198 Unrealized gain (loss) from hedging instruments (18,128) (54,054) (522,159) Translation adjustments 330,546 221,224 2,137,017 Total accumulated other comprehensive income 317,988 169,261 1,635,056 Non-controlling interests 256,400 264,798 2,557,940 Total net assets 3,297,176 3,001,339 28,992,841

Contingent liabilities (Note 19) Total liabilities and net assets ¥4,849,995 ¥4,634,518 $44,769,300

INPEX CORPORATION Annual Report 2020 75

015_0219287912106.indd 75 2021/06/29 23:29:47 Consolidated Statement of Income and Consolidated Statement of Comprehensive Income Consolidated Statement of Income INPEX CORPORATION and Consolidated Subsidiaries For the year ended December 31, 2020

Thousands of Millions of yen U.S. dollars (Note 3) 2019/12 2020/12 2020/12 Net sales ¥1,000,005 ¥ 771,046 $ 7,448,280 Cost of sales (Note 13) 424,702 439,852 4,248,956 Gross profit 575,303 331,194 3,199,323 Exploration expenses 15,426 9,074 87,654 Selling, general and administrative expenses (Notes 13, 15 and 17) 49,783 58,815 568,151 Depreciation and amortization 11,451 14,832 143,276 Operating income 498,641 248,471 2,400,222 Other income Interest income 2,422 33,480 323,415 Dividend income 3,240 6,733 65,040 Gain on sales of investment securities 4,981 — — Equity in earnings of affiliates 23,313 — — Guarantee commission received 235 6,650 64,238 Foreign exchange gain 2,481 — — Other 8,094 16,938 163,620 Total other income 44,768 63,803 616,335 Other expenses Interest expense 21,856 19,092 184,428 Loss on valuation of investment securities 3,497 6,556 63,330 Equity in losses of affiliates — 12,999 125,569 Provision for allowance for recoverable accounts under production sharing 3,115 2,566 24,787 Provision for exploration projects — 2 19 Foreign exchange loss — 8,209 79,298 Impairment loss (Note 14) 796 189,940 1,834,814 Other 3,851 5,514 53,265 Total other expenses 33,117 244,880 2,365,533 Income before income taxes 510,292 67,394 651,023 Income taxes (Note 7) Current 361,180 184,127 1,778,661 Deferred 24,545 (12,926) (124,864) Total income taxes 385,725 171,200 1,653,786 Net income (loss) 124,566 (103,806) (1,002,762) Net income attributable to non-controlling interests 1,015 7,893 76,246 Net income (loss) attributable to owners of parent ¥ 123,550 ¥(111,699) $(1,079,008)

Consolidated Statement of Comprehensive Income INPEX CORPORATION and Consolidated Subsidiaries For the year ended December 31, 2020

Thousands of Millions of yen U.S. dollars (Note 3) 2019/12 2020/12 2020/12 Net income (loss) ¥ 124,566 ¥ (103,806) $ (1,002,762) Other comprehensive income Unrealized holding gain (loss) on securities 2,685 (3,483) (33,645) Unrealized gain (loss) from hedging instruments (192) 281 2,714 Translation adjustments (29,557) (109,917) (1,061,794) Share of other comprehensive income of affiliates accounted (24,608) (39,904) (385,471) for by the equity-method Total other comprehensive income (Note 8) (51,674) (153,024) (1,478,207) Comprehensive income 72,892 (256,830) (2,480,969) Total comprehensive income attributable to: Owners of parent 72,922 (260,426) (2,515,707) Non-controlling interests ¥ (30) ¥ 3,596 $ 34,737 See accompanying notes to consolidated financial statements.

76 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 76 2021/06/29 23:29:47 Consolidated Statement of Changes in Net Assets INPEX’s Vision and Value Creation INPEX CORPORATION and Consolidated Subsidiaries

Millions of yen Shareholders’ equity Total shareholders’ Common stock Capital surplus Retained earnings Treasury stock For the year ended December 31, 2019 equity Balance as of April 1, 2019 ¥290,809 ¥673,574 ¥1,678,914 ¥(5,434) ¥2,637,864 Change in ownership interest of parent arising from 800 800 transactions with non-controlling shareholders Cash dividends paid (39,429) (39,429) Net income attributable to owners of parent 123,550 123,550 Disposal of treasury stock 2 2 Net changes in items other than those in shareholders’ equity Total changes during the period — 800 84,120 2 84,922 Balance as of December 31, 2019 ¥290,809 ¥674,374 ¥1,763,034 ¥(5,432) ¥2,722,786 Millions of yen Accumulated other comprehensive income Growth Strategies for Value Creation Unrealized holding Unrealized gain Total accumulated Non-controlling Translation Total net assets gain (loss) on (loss) from hedging other comprehensive interests adjustments For the year ended December 31, 2019 securities instruments income Balance as of April 1, 2019 ¥2,832 ¥ 6,359 ¥359,426 ¥368,617 ¥251,103 ¥3,257,584 Change in ownership interest of parent arising from 800 transactions with non-controlling shareholders Cash dividends paid (39,429) Net income attributable to owners of parent 123,550 Disposal of treasury stock 2 Net changes in items other than those in 2,738 (24,487) (28,879) (50,628) 5,297 (45,330) shareholders’ equity Total changes during the period 2,738 (24,487) (28,879) (50,628) 5,297 39,592 Balance as of December 31, 2019 ¥5,570 ¥(18,128) ¥330,546 ¥317,988 ¥256,400 ¥3,297,176 Millions of yen Shareholders’ equity Total shareholders’ Common stock Capital surplus Retained earnings Treasury stock For the year ended December 31, 2020 equity Balance as of January 1, 2020 ¥290,809 ¥674,374 ¥1,763,034 ¥(5,432) ¥2,722,786 Change in ownership interest of parent arising from transactions with non-controlling shareholders — Cash dividends paid (43,810) (43,810)

Net loss attributable to owners of parent (111,699) (111,699) The Basis of our Value Creation Disposal of treasury stock 3 3 Net changes in items other than those in shareholders’ equity Total changes during the period — — (155,510) 3 (155,507) Balance as of December 31, 2020 ¥290,809 ¥674,374 ¥1,607,524 ¥(5,428) ¥2,567,279 Millions of yen Accumulated other comprehensive income Unrealized holding Unrealized gain Total accumulated Non-controlling Translation Total net assets gain (loss) on (loss) from hedging other comprehensive interests adjustments For the year ended December 31, 2020 securities instruments income Balance as of January 1, 2020 ¥5,570 ¥(18,128) ¥330,546 ¥317,988 ¥256,400 ¥3,297,176 Change in ownership interest of parent arising from transactions with non-controlling shareholders — Cash dividends paid (43,810) Net loss attributable to owners of parent (111,699) Disposal of treasury stock 3 Net changes in items other than those in shareholders’ equity (3,479) (35,926) (109,322) (148,727) 8,397 (140,329) Total changes during the period (3,479) (35,926) (109,322) (148,727) 8,397 (295,836)

Balance as of December 31, 2020 ¥2,091 ¥(54,054) ¥221,224 ¥169,261 ¥264,798 ¥3,001,339 Performance and Financial Overview Thousands of U.S. dollars (Note 3) Shareholders’ equity Total shareholders’ Common stock Capital surplus Retained earnings Treasury stock For the year ended December 31, 2020 equity Balance as of January 1, 2020 $2,809,205 $6,514,431 $17,030,853 $(52,472) $26,302,028 Change in ownership interest of parent arising from — transactions with non-controlling shareholders Cash dividends paid (423,203) (423,203) Net loss attributable to owners of parent (1,079,008) (1,079,008) Disposal of treasury stock 28 28 Net changes in items other than those in shareholders’ equity Total changes during the period — — (1,502,221) 28 (1,502,192) Balance as of December 31, 2020 $2,809,205 $6,514,431 $15,528,632 $(52,434) $24,799,835 Thousands of U.S. dollars (Note 3) Accumulated other comprehensive income Unrealized holding Unrealized gain Total accumulated Non-controlling Translation Total net assets gain (loss) on (loss) from hedging other comprehensive interests adjustments For the year ended December 31, 2020 securities instruments income Balance as of January 1, 2020 $53,806 $(175,115) $3,193,064 $3,071,754 $2,476,816 $31,850,618 Change in ownership interest of parent arising from — transactions with non-controlling shareholders Cash dividends paid (423,203) Net loss attributable to owners of parent (1,079,008) Disposal of treasury stock 28 Net changes in items other than those in (33,607) (347,044) (1,056,047) (1,436,698) 81,114 (1,355,573) shareholders’ equity Total changes during the period (33,607) (347,044) (1,056,047) (1,436,698) 81,114 (2,857,766) Balance as of December 31, 2020 $20,198 $(522,159) $2,137,017 $1,635,056 $2,557,940 $28,992,841 See accompanying notes to consolidated financial statements.

INPEX CORPORATION Annual Report 2020 77

015_0219287912106.indd 77 2021/06/29 23:29:47 Consolidated Statement of Cash Flows INPEX CORPORATION and Consolidated Subsidiaries For the year ended December 31, 2020

Thousands of Millions of yen U.S. dollars (Note 3) 2019/12 2020/12 2020/12 Cash flows from operating activities Income before income taxes ¥ 510,292 ¥ 67,394 $ 651,023 Depreciation and amortization 135,629 174,098 1,681,781 Impairment loss 796 189,940 1,834,814 Amortization of goodwill 5,022 6,760 65,301 Provision for allowance for recoverable accounts under production sharing 3,163 2,544 24,574 Provision for exploration projects 4,573 (1,907) (18,421) Other provisions (446) (777) (7,505) Liability for retirement benefits 1,780 186 1,796 Interest and dividend income (5,662) (40,214) (388,465) Interest expense 21,856 19,092 184,428 Foreign exchange loss (gain) (747) 4,809 46,454 Equity in losses (earnings) of affiliates (23,313) 12,999 125,569 Loss (gain) on sales of investment securities (4,981) — — Loss (gain) on valuation of investment securities 3,497 6,556 63,330 Recovery of recoverable accounts under production sharing 32,261 34,691 335,113 (capital expenditures) Recoverable accounts under production sharing (5,471) (7,101) (68,595) (operating expenditures) Accounts receivable—trade (57,433) 61,756 596,561 Inventories (760) 6,507 62,857 Accounts payable—trade (10,393) (6,612) (63,871) Accounts receivable—other 22,796 9,972 96,329 Accounts payable—other (14,946) (21,458) (207,283) Advances received (14,269) (148) (1,429) Other 16,153 1,852 17,890 Subtotal 619,398 520,941 5,032,273 Interest and dividends received 10,361 9,568 92,426 Interest paid (17,601) (19,494) (188,311) Income taxes paid (337,428) (218,099) (2,106,829) Net cash provided by (used in) operating activities 274,730 292,915 2,829,549 Cash flows from investing activities Payments for time deposits (23) (64,283) (620,971) Proceeds from time deposits 22 53,408 515,919 Payments for purchases of tangible fixed assets (109,737) (129,745) (1,253,332) Proceeds from sales of tangible fixed assets 249 404 3,902 Payments for purchases of intangible assets (1,221) (3,380) (32,650) Payments for purchases of investment securities (1,032) (429) (4,144) Proceeds from sales and redemptions of investment securities 3,136 1,318 12,731 Investment in recoverable accounts under production sharing (36,679) (35,039) (338,475) (capital expenditures) Decrease (increase) in short-term loans receivable 412 543 5,245 Long-term loans made (113,751) (84,829) (819,445) Collection of long-term loans receivable 5,299 40,108 387,442 Payments for purchases of long-term loans receivable — (201,769) (1,949,082) Payments for acquisitions of participating interests (35,870) (5,760) (55,641) Other 457 12,266 118,489 Net cash provided by (used in) investing activities (288,740) (417,189) (4,030,032) Cash flows from financing activities Increase (decrease) in short-term loans — 92,107 889,750 Proceeds from long-term debt 79,037 238,564 2,304,520 Repayments of long-term debt (89,842) (158,903) (1,534,998) Proceeds from non-controlling interests for additional shares 10,173 8,900 85,973 Cash dividends paid (39,432) (43,796) (423,068) Cash dividends paid to non-controlling interests (6,725) (4,098) (39,586) Other (1,827) (6,026) (58,210) Net cash provided by (used in) financing activities (48,615) 126,747 1,224,372 Effect of exchange rate changes on cash and cash equivalents (3,253) (3,842) (37,113) Net increase (decrease) in cash and cash equivalents (65,878) (1,368) (13,214) Cash and cash equivalents at beginning of the period 239,652 173,774 1,678,651 Cash and cash equivalents at end of the period ¥ 173,774 ¥ 172,405 $ 1,665,426 See accompanying notes to consolidated financial statements.

78 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 78 2021/06/29 23:29:47 Notes INPEX’s Vision and Value Creation INPEX CORPORATION and Consolidated Subsidiaries

1. BASIS OF PRESENTATION

The Company is primarily engaged in the research, exploration, The accompanying consolidated financial statements have development and production of crude oil and natural gas. been prepared in accordance with accounting principles general- The Company and its domestic subsidiaries maintain their ac- ly accepted in Japan, which may differ in certain material respects counting records and prepare their financial statements in accor- from IFRS or U.S. GAAP, and are compiled from the consolidated dance with accounting principles generally accepted in Japan. financial statements prepared by the Company as required by the The accompanying consolidated financial statements have Financial Instruments and Exchange Act of Japan. been prepared by using the accounts of foreign consolidated The Company has made certain reclassifications of the previ- subsidiaries prepared in accordance with International Financial ous years’ consolidated financial statements to conform to the Reporting Standards, or IFRS or the accounting principles gener- presentation used for the year ended December 31, 2020. ally accepted in the United States, or U.S. GAAP as adjusted for certain items. Growth Strategies for Value Creation

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation and accounting for at cost, determined by the moving-average method (balance investments in affiliates sheet value is carried at the lower of cost or market). The accompanying consolidated financial statements include the accounts of the Company and companies controlled directly or (g) Allowance for doubtful accounts indirectly by the Company. Companies over which the Company Allowance for doubtful accounts is provided at an amount deter- exercises significant influence in terms of their operating and fi- mined based on the historical experience of bad debt with re- nancial policies are included in the consolidated financial state- spect to ordinary receivables, plus an estimate of uncollectible ments on an equity basis. All significant intercompany balances amounts determined by reference to specific doubtful receivables and transactions are eliminated in consolidation. Further, certain from customers experiencing financial difficulties. companies that do not have significant impact on the consolidated financial statements, are not consolidated or accounted for by (h) Recoverable accounts under production sharing and the equity-method. related allowance The Company changed its consolidated fiscal year-end from Cash investments made by the Company during exploration, de- March 31 to December 31 following the approval for the Partial velopment and production phases under a production sharing Amendments to the Articles of Incorporation at the Ordinary contract are recorded as “Recoverable accounts under produc- General Meeting of Shareholders held on June 25, 2019. As a re- tion sharing” so long as they are recoverable under the terms of sult of this change, the year ended December 31, 2019 was a pe- the relevant contract. When the Company receives crude oil and The Basis of our Value Creation riod of nine months from April 1, 2019 to December 31, 2019. natural gas in accordance with the relevant contract, an amount The fiscal year-ends of consolidated subsidiaries are now the corresponding to the purchase costs of the products (i.e., a cost same as the consolidated fiscal year-end. recovery portion of the investments) is released from this account. The excess of cost over underlying net assets excluding Because these investments are recoverable only where com- non-controlling interests at fair value as of the date of acquisition mercial oil or gas is discovered, an allowance for recoverable ac- is accounted for as goodwill and amortized over 20 years on counts under production sharing is provided for probable losses a straight-line method. on investments made during the exploration stage under production sharing contracts arising from the failure to discover commer- (b) Cash equivalents cial oil and gas. In light of this uncertainty, an allowance for All highly liquid investments with a maturity of three months or recoverable accounts under production sharing is provided for less when purchased are considered cash equivalents, including probable losses on development investment individually estimat- short-term time deposits with original maturities of three months ed for each project. or less. (i) Allowance for investments in exploration (c) Foreign currency translation Allowance for investments in exploration is provided for future Monetary assets and liabilities denominated in foreign currencies potential losses on investments in exploration companies at an are translated into yen at the exchange rates prevailing at the bal- estimated amount based on the net assets of the investees. ance sheet date. All revenues and expenses associated with for-

eign currencies are translated at the rates of exchange prevailing (j) Tangible fixed assets (except leased assets) Performance and Financial Overview when such transactions were made. The resulting exchange gain Depreciation of overseas mining facilities is mainly computed by or loss is credited or charged to income. the unit-of-production method. The assets and liability accounts of overseas subsidiaries are For other tangible fixed assets, the straight-line method of de- translated into yen at the exchange rates prevailing at the bal- preciation is applied. The useful lives of fixed assets are based on ance sheet date. The revenue and expense accounts of the over- the estimated useful lives of the respective assets. seas subsidiaries are translated into yen at the average rates of exchange during the period. The components of net assets ex- (k) Intangible assets (except leased assets) cluding non-controlling interests are translated at their historical Exploration and development rights at the exploration stage are exchange rates. The differences arising from the translation are fully amortized in the year such rights are acquired, and those at presented as translation adjustments and non-controlling inter- the production stage are amortized by the unit-of-production ests in the accompanying consolidated financial statements. method. Mining rights are amortized mainly by the unit-of-production (d) Securities method. In general, securities are classified into three categories: trading, Other intangible assets are amortized mainly by the straight- held-to-maturity or other securities. Securities held by the Com- line method. pany and its subsidiaries are all classified as other securities. Oth- Capitalized computer software costs are amortized by the er securities with a determinable market value are mainly stated straight-line method over a period of 5 years. at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. (l) Leased assets Other securities without a determinable market value are stated Leased assets are amortized by the straight-line method over the at cost determined by the moving-average method. Cost of secu- lease period assuming no residual value. rities sold is determined by the moving- average method. (m) Accrued bonuses (e) Derivatives Accrued bonuses to employees are provided at the expected Derivatives are stated at fair value. payment amount for the fiscal year. (f) Inventories (n) Accrued bonuses to officers Overseas inventories are carried mainly at cost, determined by Accrued bonuses to officers are provided at the expected pay- the average cost method (balance sheet value is carried at the ment amount for the fiscal year. lower of cost or market). Domestic inventories are carried mainly

INPEX CORPORATION Annual Report 2020 79

015_0219287912106.indd 79 2021/06/29 23:29:47 (o) Provision for loss on business (Scheduled effective date) Provision for loss on business is provided for future potential loss- The accounting standard and guidance are scheduled to take es on crude oil and natural gas development, production and effect from the beginning of the year ending December 31, sales business individually estimated for each project. 2022. (Impact of adopting standards) (p) Provision for exploration projects The impact of adopting the accounting standard and guidance Provision for exploration projects is provided for future expendi- on consolidated financial statements is now under evaluation. tures as of December 31, 2020, of consolidated subsidiaries at the exploration stage based on a schedule of investments in • “Accounting Standard for Fair Value Measurement” (ASBJ exploration. Statement No.30, issued on July 4, 2019) • “Implementation Guidance on Accounting Standard for Fair (q) Provision for stocks payment Value Measurement” (ASBJ Guidance No.31, issued on July 4, Provision for stocks payment is provided to prepare for payments 2019) of stock benefits to directors and other under the share delivery • “Accounting Standard for Measurement of Inventories” (ASBJ rule. The amount is based on the expected stock benefit payable. Statement No.9, revised on July 4, 2019) • “Accounting Standard for Financial Instruments” (ASBJ State- (r) Accrued special repair and maintenance ment No.10, revised on July 4, 2019) Accrued special repair and maintenance are provided for planned • “Implementation Guidance on Disclosures about Fair Value of major repair and maintenance activities on tanks in certain sub- Financial Instruments” (ASBJ Guidance No.19, revised on sidiaries at amounts accumulated through the next activity. March 31, 2020) (Overview) (s) Accounting for retirement benefits To enhance comparability with international accounting standards, ASBJ developed “Accounting Standard for Fair Value (Method of attributing expected retirement benefits Measurement” and “Implementation Guidance on Account- to proper periods) ing Standard for Fair Value Measurement”, and established When calculating retirement benefit obligations, the benefit certain guidelines about fair value measurement. These apply formula method is used for attributing expected retirement to the following items. benefits to periods through December 31, 2020. Because · Financial instruments based on “Accounting Standard for Fi- certain subsidiaries are classified as small enterprises, a sim- nancial Instruments” plified method (the amount which would be required to be · Inventories held for trading based on “Accounting Standard paid if all active employees voluntarily terminated their em- for Measurement of Inventories” ployment as of the balance sheet date) is applied for the cal- In addition, ASBJ revised “Implementation Guidance on Dis- culation of the retirement benefit obligation for those closures about Fair Value of Financial Instruments”, which re- subsidiaries. quires information in the notes about breakdown of fair value (Method of recognizing for actuarial differences) of financial instruments. Actuarial gains and losses are charged or credited to income (Scheduled effective date) as incurred. The accounting standard and guidance are scheduled to take effect from the beginning of the year ending December 31, (t) Asset retirement obligations 2022. Asset retirement obligations are recorded by a reasonable esti- (Impact of adopting standards) mate of the present value of retirement costs incurred upon ter- The impact of adopting the accounting standard and guidance mination of the operation and production with respect to oil and on the consolidated financial statements is now under gas production facilities, based on the oil and gas contracts or evaluation. laws and regulations within the countries in which the Company operates or has working interests. • “Accounting Standard for Accounting Policy Disclosures, Ac- counting Changes and Error Corrections” (ASBJ Statement (u) Hedge accounting No.24, revised on March 31, 2020) (Hedge accounting method) (Overview) Deferral hedge accounting is applied. The purpose is to outline accounting principles and proce- (Hedging instruments and hedged items) dures adopted, when the related accounting standards are Hedging instruments are interest rate currency swaps. not clearly defined. Hedged items are liabilities denominated in Japanese yen. (Scheduled effective date) (Hedging policy) The accounting standard is scheduled to take effect from the Derivative transactions are limited to the scope of actual de- end of the year ending December 31, 2022. mands. And the Company does not engage in speculative derivative transactions. • “Accounting Standard for Disclosure of Accounting Estimates” (Assessment of the effectiveness of hedge accounting) (ASBJ Statement No.31, issued on March 31, 2020) The Company assesses the effectiveness of hedge accounting (Overview) by verifying the relationship between the hedging instruments The purpose is to disclose useful information for users of fi- and hedged items. nancial statements, which is about accounting estimates of the current fiscal year having significant influence on financial (v) Research and development expenses statements for the next fiscal year. Research and development expenses are charged to income as (Scheduled effective date) incurred. The accounting standard is scheduled to take effect from the end of the year ending December 31, 2022. (w) Income taxes Deferred tax assets and liabilities are determined based on the (y) Additional information differences between financial reporting and the tax bases of the (Accounting estimates for the impact of the spread of assets and liabilities and are measured using the enacted tax COVID-19) rates and laws which will be in effect when the differences are ex- The Group’s consolidated financial statements include the pected to reverse. management’s estimates and assumptions, which have an impact on the amount of assets, liabilities, revenue and (x) Standards issued but not effective expenses. • “Accounting Standard for Revenue Recognition” (Accounting These estimates and assumptions are based on the man- Standards Board of Japan (“ASBJ”) Statement No.29, issued agement’s best judgment that considers various factors on March 31, 2020) which seem reasonable as of December 31, 2020, such as • “Implementation Guidance on Accounting Standard for Reve- the impact of the spread of COVID-19 and the fluctuations nue Recognition” (ASBJ Guidance No.30, issued on March 31, of crude oil prices due to trends in oil-producing countries. 2020) The average price of Brent crude was US$43.2 in the year (Overview) ended December 31, 2020, which was low, but the Group es- These are comprehensive accounting standard and guidance timates that it will steadily recover after the year ending De- about revenue recognition. Revenue is recognized using the cember 31, 2021. However, there is a possibility that actual following five steps. results may be different from the estimates and assumptions 1. Identify the contracts with a customer because of their uncertainty. 2. Identify the performance obligations in the contract The assessment of impairment loss on fixed assets is the 3. Determine the transaction price item on which the estimates and assumptions have an espe- 4. Allocate the transaction price to the performance obliga- cially significant impact in the Group. tions in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation

80 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 80 2021/06/29 23:29:47 3. U.S. DOLLAR AMOUNTS INPEX’s Vision and Value Creation The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at ¥103.52=US$1.00, the approximate exchange rate in effect as of December 31, 2020. This translation should not be construed as a represen- tation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

4. STATUS OF FINANCIAL INSTRUMENTS

(a) Policy regarding financial instruments (Interest rate fluctuation risk related to short-term The Company raises funds for oil and gas development and pro- loans and long-term debt) duction, construction or expansion of gas infrastructure primarily Loans are mainly used to fund oil and natural gas development from cash flow on hand and from bank loans. Oil and gas devel- projects and construction or expansion of domestic gas infra- opment projects are primarily funded from long-term loans that structure and others. The borrowing period is determined consid- the Company has secured from the Japan Bank for International ering the financial prospects of the project and useful lives of the Cooperation, Japanese commercial banks and others. Japan Oil, facilities. Loans with variable interest rates are exposed to interest Gas and Metals National Corporation has provided guarantees rate fluctuation risk, however, the Company analyzes the impact for the principal on certain outstanding amounts of the Compa- of interest rate fluctuation at the time of borrowing and on an an- ny’s long-term loans. The Development Bank of Japan and Japa- nual basis, and leverages fixed-rate-loans as necessary consider- nese commercial banks and others have provided long-term ing the project statuses. Growth Strategies for Value Creation loans for the construction or expansion of domestic gas infrastructure. The Company generally borrows loans with variable in- (Exchange rates fluctuation risk related to assets and terest rates, while some loans are with a fixed interest rate liabilities in foreign currencies) depending on the nature of each project. As most of the Company’s business is conducted overseas, the Regarding the financing policy, the Company manages funds Company is exposed to exchange rate fluctuation risk due to in consideration of being low-risk and high-liquidity. The Compa- a large portion of monetary assets and liabilities held in foreign ny uses derivative transactions only to manage risks of forecasted currencies such as cash and deposits, accounts receivables and transactions and portfolio assets, and does not engage in specu- loans required in overseas projects. For this reason, the Company lative derivative transactions. endeavors to reduce exchange rate fluctuation risk by maintaining the position between assets and liabilities in foreign curren- (b) Details of financial instruments, associated risks and cies. In addition to planned expenditures in foreign currencies, risk management the Company manages exchange rate fluctuation risk through (Credit risk related to trade receivables) derivative transactions such as foreign exchange forwards and Trade receivables such as accounts receivable—trade and ac- others as necessary. counts receivable—other are comprised mainly from sales of crude oil and natural gas. Main trading partners are national oil (Management of derivative transactions) companies, major oil companies and others. In line with the crite- For the above derivative transactions, the Company follows its in- ria for trading and credit exposure management, the Company ternal rules. Market values of these derivatives are regularly re- properly analyzes the status of trading partners for early detection ported to the Executive Committee, and the Company only and reduction of default risks. transacts with financial institutions with high credit ratings to re-

duce counterparty risks for the use of derivatives. Regarding the The Basis of our Value Creation (Market price fluctuation risk related to securities) Group’s hedge accounting, hedging instruments, hedged items, For marketable securities and investment securities exposed to hedging policy and assessment of the effectiveness of hedge ac- market price fluctuation risk, analysis of market values is regularly counting are described in “(u) Hedge accounting” of “2. SUM- reported to the Executive Committee. For shares of stock, the MARY OF SIGNIFICANT ACCOUNTING POLICIES”. Company mainly holds shares of trading partners and others to establish close and smooth relationships for the purpose of main- (Management of liquidity risk related to financing) taining a medium- to long-term stable business. A part of these The finance and accounting division controls cash management shares is held for the purpose of investment. based on a monthly financing plan prepared by each project division and secures sufficient liquidity on hand to prepare for liquidity risk.

5. SECURITIES

(a) Information regarding other securities as of December 31, 2019 and 2020 is as follows: Millions of yen Performance and Financial Overview Unrealized gain Acquisition cost Carrying value December 31, 2019 (loss) Securities with carrying values exceeding their acquisition costs Stock ¥15,935 ¥20,103 ¥ 4,168 Other 2,178 6,200 4,021 Subtotal 18,114 26,303 8,189 Securities with acquisition costs exceeding their carrying values Stock 23,691 22,409 (1,282) Subtotal 23,691 22,409 (1,282) Total ¥41,806 ¥48,713 ¥ 6,907

Millions of yen Thousands of U.S. dollars Unrealized gain Unrealized gain Acquisition cost Carrying value Acquisition cost Carrying value December 31, 2020 (loss) (loss) Securities with carrying values exceeding their acquisition costs Stock ¥ 2,863 ¥ 4,399 ¥ 1,536 $ 27,656 $ 42,494 $ 14,837 Other 2,178 7,198 5,019 21,039 69,532 48,483 Subtotal 5,041 11,598 6,556 48,695 112,036 63,330 Securities with acquisition costs exceeding their carrying values Stock 30,385 26,810 (3,575) 293,518 258,983 (34,534) Subtotal 30,385 26,810 (3,575) 293,518 258,983 (34,534) Total ¥35,427 ¥38,408 ¥ 2,981 $342,223 $371,020 $ 28,796

INPEX CORPORATION Annual Report 2020 81

015_0219287912106.indd 81 2021/06/29 23:29:48 (b) There is no information regarding sales of securities classified as other securities for the years ended December 31, 2019 and 2020. (c) Components of securities for which it is extremely difficult to determine fair value as of December 31, 2019 and 2020 are summarized as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Unlisted securities ¥ 23,256 ¥ 21,691 $ 209,534 Stocks of subsidiaries and affiliates 306,557 237,767 2,296,821 Total ¥329,814 ¥259,458 $2,506,356

These securities are not included in (a) as they have no quoted market prices and it is extremely difficult to determine their fair value. For shares of exploration companies, an allowance for investments in exploration is provided at an estimated amount based on the financial position of the investees.

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT, ASEETS PLEDGED

(a) Short-term borrowings as of December 31, 2019 and 2020 are as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Short-term borrowings from banks and others (Interest rate is 4.498% at December 31, 2019) (Interest rate ranging from 0.503% to 4.498% at December 31, ¥4,754 ¥93,614 $904,308 2020)

(b) Long-term debt as of December 31, 2019 and 2020 are as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Loans from banks and others, due through 2035 (Interest rates ranging from 0.028% to 3.982% and from ¥1,113,025 ¥1,141,233 $11,024,275 0.035% to 2.589% at December 31, 2019 and 2020) Less: Current portion 162,077 81,519 787,471 Amounts on the consolidated balance sheet ¥ 950,948 ¥1,059,713 $10,236,794

(c) Assets pledged as of December 31, 2019 and 2020 are as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Cash and cash equivalents ¥ 31,072 ¥ 35,714 $ 344,996 Accounts receivable—trade 12,344 10,378 100,251 Inventories 12,798 15,338 148,164 Wells 224,663 231,086 2,232,283 Machinery, equipment and vehicles 1,181,680 1,067,388 10,310,935 Land 146 138 1,333 Construction in progress 41,453 55,495 536,079 Investment securities 202,344 144,009 1,391,122 Long-term loans receivable 673,576 722,546 6,979,772 Other 7,068 22,253 214,963 Total ¥2,387,149 ¥2,304,349 $22,259,940

The above is mainly related to Ichthys LNG Project Finance, and includes others that are pledged as collateral for liabilities of affiliates. (d) The aggregate annual maturities of long-term debt subsequent to December 31, 2020 are summarized as follows: Years ending December 31, Millions of yen Thousands of U.S. dollars 2021 ¥ 81,519 $ 787,471 2022 139,255 1,345,198 2023 91,317 882,119 2024 137,149 1,324,855 2025 217,365 2,099,739 2026 and thereafter 474,625 4,584,862 Total ¥1,141,233 $11,024,275

82 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 82 2021/06/29 23:29:48 7. INCOME TAXES INPEX’s Vision and Value Creation The Company and its domestic consolidated subsidiaries are subject to income taxes which, in the aggregate, resulted in a statutory tax rate of approximately 28.0% for the years ended December 31, 2019 and 2020.

(a) The effective tax rates reflected in the consolidated statement of income for the years ended December 31, 2019 and 2020 differ from the statutory tax rate for the following reasons: 2019/12 2020/12 Statutory tax rate 28.0% 28.0% Effect of: Permanently non-taxable expenses such as entertainment expenses 0.4 2.7 Permanently non-taxable income such as dividends income (0.1) (2.1) Valuation allowance 0.0 47.2 Foreign taxes 26.3 142.7 Foreign tax credits (7.8) (3.2)

Adjustment of deducted amounts of foreign taxes (0.4) (38.5) Growth Strategies for Value Creation Amortization of goodwill 0.3 2.9 Differences of effective tax rates applied to tax effect accounting (0.7) (24.2) (domestic subsidiaries) Differences of effective tax rates applied to tax effect accounting 25.4 81.7 (overseas subsidiaries) Retained earnings of certain subsidiaries 0.1 9.3 Reversal of translation adjustments — 7.7 Other 4.1 (0.2) Effective tax rates 75.6% 254.0%

(b) The significant components of deferred tax assets and liabilities as of December 31, 2019 and 2020 are described below. Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Deferred tax assets The Basis of our Value Creation Exploration expenditures ¥ 52,084 ¥ 53,622 $ 517,986 Loss on valuation of investment securities 3,013 4,059 39,209 Recoverable accounts under production sharing 1,567 2,821 27,250 (foreign taxes) Allowance for investments in exploration 670 688 6,646 Foreign taxes payable 48,454 14,782 142,793 Net operating loss carry-forwards*1 351,779 399,633 3,860,442 Accumulated depreciation 26,378 27,489 265,542 Liability for retirement benefits 2,583 2,632 25,425 Provision for loss on business 2,418 2,618 25,289 Translation differences of assets and liabilities denominated in 10,986 2,883 27,849 foreign currencies Asset retirement obligations 14,091

15,550 150,212 Performance and Financial Overview Allowance for doubtful accounts 3,665 3,613 34,901 Impairment loss 37,622 41,147 397,478 Other 47,892 56,319 544,039 Total gross deferred tax assets 603,208 627,864 6,065,146 Valuation allowance for net operating loss carry-forwards*1 (237,616) (270,477) (2,612,799) Valuation allowance for total amount of deductible temporary (210,676) (181,883) (1,756,984) difference and others Total valuation allowance (448,292) (452,360) (4,369,783) Total deferred tax assets 154,915 175,504 1,695,363 Deferred tax liabilities Foreign taxes (176,021) (173,016) (1,671,329) Translation differences of assets and liabilities denominated in (7) (517) (4,994) foreign currencies Translation differences due to an application of purchase (6,799) (5,347) (51,651) accounting method Reserve for exploration (3,245) (3,650) (35,258) Unrealized holding gain on securities (1,422) (979) (9,457) Other (4,254) (14,350) (138,620) Total deferred tax liabilities (191,750) (197,861) (1,911,331) Net deferred tax assets (liabilities) ¥ (36,834) ¥ (22,356) $ (215,958)

INPEX CORPORATION Annual Report 2020 83

015_0219287912106.indd 83 2021/06/29 23:29:48 *1 Net operating loss carry-forwards and relevant deferred tax assets by expiration dates are as follows: Millions of yen More than 1 year More than 5 years More than 1 year or less Total December 31, 2019 and up to 5 years and up to 10 years 10 years*b Net operating loss carry-forwards*a ¥ 1,963 ¥ 32,201 ¥ 43,908 ¥ 273,704 ¥ 351,779 Valuation allowance (1,678) (27,583) (14,932) (193,422) (237,616) Deferred tax assets ¥ 284 ¥ 4,618 ¥ 28,976 ¥ 80,282 ¥ 114,162

Millions of yen More than 1 year More than 5 years More than 1 year or less Total December 31, 2020 and up to 5 years and up to 10 years 10 years*b Net operating loss carry-forwards*a ¥ 495 ¥ 66,041 ¥ 34,977 ¥ 298,118 ¥ 399,633 Valuation allowance (479) (27,264) (20,102) (222,630) (270,477) Deferred tax assets ¥ 16 ¥ 38,776 ¥ 14,874 ¥ 75,488 ¥ 129,156

Thousands of U.S. dollars More than 1 year More than 5 years More than 1 year or less Total December 31, 2020 and up to 5 years and up to 10 years 10 years*b Net operating loss carry-forwards*a $ 4,781 $ 637,954 $ 337,876 $ 2,879,810 $ 3,860,442 Valuation allowance (4,627) (263,369) (194,184) (2,150,598) (2,612,799) Deferred tax assets $ 154 $ 374,574 $ 143,682 $ 729,211 $ 1,247,642 *a Net operating loss carry-forwards is multiplied by statutory tax rate. *b Including amounts with no expiration date under applicable laws and regulations.

8. COMPREHENSIVE INCOME

Amount of reclassification adjustments and income tax effects allocated to each component of other comprehensive income for the years ended December 31, 2019 and 2020 are as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Unrealized holding gain (loss) on securities Amount recognized during the period ¥ 469 ¥ (10,304) $ (99,536) Amount of reclassification adjustments 2,994 6,378 61,611 Before income tax effect 3,464 (3,926) (37,925) Amount of income tax effect (778) 442 4,269 2,685 (3,483) (33,645) Unrealized gain (loss) from hedging instruments Amount recognized during the period (192) 281 2,714 (192) 281 2,714 Translation adjustments Amount recognized during the period (27,041) (128,446) (1,240,784) Amount of reclassification adjustment (2,516) 18,528 178,979 (29,557) (109,917) (1,061,794) Share of other comprehensive income of affiliates accounted for by the equity-method Amount recognized during the period (22,298) (49,668) (479,791) Amount of reclassification adjustments (2,310) 9,763 94,310 (24,608) (39,904) (385,471) Total other comprehensive income ¥(51,674) ¥(153,024) $(1,478,207)

84 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 84 2021/06/29 23:29:48 9. NET ASSETS INPEX’s Vision and Value Creation The total number of the Company’s shares issued consisted of A stock by a resolution of the meeting of the Board of Directors in 1,462,323,600 shares of common stock and 1 Class A stock as of case where Class A stock is transferred to a non-public entity. December 31, 2020. The Company conducted a stock split at a ratio of 1:400 of Class A stock has no voting rights at the common sharehold- common stock with October 1, 2013 as the effective date, but for ers’ meeting, but the ownership of Class A stock gives its holder Class A stock, no stock split was conducted. The Articles of Incor- a right of veto over certain important matters described below. poration specifies that dividends of Class A stock are equivalent However, requirements stipulated in the Articles of Incorporation to dividends of a common stock prior to the stock split. The cash need to be met in cases involving the exercise of the veto over dividends of Class A stock for the year ended December 31, 2020 the appointment or removal of directors, the disposition of all or amounted to ¥9,600. a portion of material assets, and business integration; Under the Companies Act of Japan, 10% of the amount to be • Appointment or removal of Directors distributed as dividends from capital surplus (other than capital • Disposition of all or a portion of material assets reserve) and retained earnings (other than legal reserve) should • Amendments to the Articles of Incorporation relating to the be transferred to capital reserve and legal reserve, respectively, Company’s business objectives and granting voting rights to up to the point where total amount of capital reserve and legal any shares other than the common shares of the Company reserve equals 25% of the common stock account. • Business integration Distributions can be made at any time by a resolution of the • Capital reduction meeting of shareholders, or the Board of Directors if certain con- Growth Strategies for Value Creation • Company dissolution ditions are met, but neither capital reserve nor legal reserve is Class A stock shareholder may request the Company to ac- available for distributions. quire Class A stock. Besides, the Company may also acquire Class

10. AMOUNTS PER SHARE

Amounts per share as of December 31, 2019 and 2020 are as follows: Yen U.S. dollars 2019/12 2020/12 2020/12 Net assets excluding non-controlling interests per share ¥2,082.43 ¥1,874.08 $18.10 Cash dividends per share 30.00 24.00 0.23 Net income (loss) per share ¥ 84.61 ¥ (76.50) $ (0.74)

Diluted net income per share is not presented because there are no dilutive potential of shares of common stock. The Basis of our Value Creation Net assets excluding non-controlling interests per share are computed based on the net assets excluding non-controlling interests and the number of shares of common stock outstanding at the year end. Cash dividends per share represent the cash dividends proposed by the Board of Directors together with the interim cash dividends paid. Net income (loss) per share is computed based on the net income available for distribution to shareholders of common stock and the average number of shares of common stock outstanding during the year.

For the purpose of computing net assets excluding non-controlling interests per share, the Company’s shares held by “the Board Incentive Plan Trust”* recorded as treasury stock under shareholders’ equity are included in the treasury stock to be deducted from the total number of shares issued at the end of the period. Additionally, in computing net income (loss) per share, above shares of the Company are included in the treasury stock to be deducted from the average number of shares during the period. The numbers of shares of treasury stock deducted from the total number of shares issued at the end of the period in computing net assets excluding non-controlling interests per share were 155,416 shares and 152,569 shares as of December 31, 2019 and 2020 respectively. The numbers of shares of treasury stock deducted from the average number of shares during the period in computing net income (loss) per share were 156,113 shares and 153,372 shares for the years ended December 31, 2019 and 2020 respectively.

* “The Board Incentive Plan Trust” is a share-based remuneration system under which a predetermined number of shares of the Company or the amount Performance and Financial Overview of money equivalent to the proceeds from the disposal of those shares are delivered or provided to the eligible Directors and Executive Officers of the Company according to their positions and other factors, covering the five calendar years from 2018 to 2023.

INPEX CORPORATION Annual Report 2020 85

015_0219287912106.indd 85 2021/06/29 23:29:48 11. DERIVATIVE TRANSACTIONS

(a) Derivatives not subject to hedge accounting Contract amounts, fair value and valuation gain (loss) regarding derivatives not subject to hedge accounting as of December 31, 2019 and 2020 are as follows: Millions of yen December 31, 2019 Contract amounts Due after one year Fair value Valuation gain (loss) Foreign exchange forwards* Sell (CAD) Buy (USD) ¥45,523 ¥ — ¥(663) ¥(663)

Millions of yen December 31, 2020 Contract amounts Due after one year Fair value Valuation gain (loss) Foreign exchange forwards* Sell (CAD) Buy (USD) ¥ 43,920 ¥ — ¥ (314) ¥ (314) Interest rate currency swaps* Receive/floating/USD and pay/fixed/JPY ¥124,293 ¥72,464 ¥2,770 ¥2,770

Thousands of U.S. dollars December 31, 2020 Contract amounts Due after one year Fair value Valuation gain (loss) Foreign exchange forwards* Sell (CAD) Buy (USD) $ 424,265 $ — $ (3,033) $ (3,033) Interest rate currency swaps* Receive/floating/USD and pay/fixed/JPY $1,200,666 $ 700,000 $26,758 $26,758

* Fair value is the price obtained from the counterparty financial institutions.

(b) Derivatives subject to hedge accounting There are no derivatives subject to hedge accounting as of December 31, 2019.

Contract amounts, fair value and valuation gain (loss) regarding derivatives subject to hedge accounting as of December 31, 2020 are as follows:

Millions of yen December 31, 2020 Principal items hedged Contract amounts Due after one year Fair value Interest rate currency swaps* Liabilities (JPY) Receive/floating/USD and pay/fixed/JPY ¥124,293 ¥72,464 ¥107

Thousands of U.S. dollars December 31, 2020 Principal items hedged Contract amounts Due after one year Fair value Interest rate currency swaps* Liabilities (JPY) Receive/floating/USD and pay/fixed/JPY $1,200,666 $700,000 $1,033

* Fair value is the price obtained from the counterparty financial institutions.

86 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 86 2021/06/29 23:29:48 12. OTHER FINANCIAL INSTRUMENTS INPEX’s Vision and Value Creation (a) The carrying value and estimated fair value of financial instruments excluding marketable securities and investment securities which are disclosed in Note 5.(a) and derivatives which are disclosed in Note 11 as of December 31, 2019 and 2020 are as shown below. The following summary also excludes cash and cash equivalents, time deposits, and accounts receivable—trade for which fair values approximate their carrying amounts. Millions of yen December 31, 2019 Carrying value Estimated fair value Short-term borrowings and current portion of long-term debt ¥166,831 ¥165,326 Long-term debt ¥950,948 ¥940,857

Millions of yen Thousands of U.S. dollars December 31, 2020 Carrying value Estimated fair value Carrying value Estimated fair value Long-term loans receivable ¥ 911,424 ¥ 917,926 $ 8,804,327 $ 8,867,136 Short-term borrowings and current portion of

175,133 174,600 1,691,779 1,686,630 Growth Strategies for Value Creation long-term debt Long-term debt ¥1,059,713 ¥1,053,580 $10,236,794 $10,177,550

(b) For other financial instruments, computation methods of estimated fair value are as shown below. (Long-term loans receivable) The estimated fair value of long-term loans receivable is calculated by applying a discount rate to the total of principal and interest. The discount rate is based on the assumed interest rate if a similar new loan is entered into.

(Short-term borrowings and current portion of long-term debt) The estimated fair value of current portion of long-term debt is calculated by the same method as long-term debt. For short-term borrowings, the relevant carrying value is used since the item is settled in a short periods of time and its fair value is almost the same as the carrying value.

(Long-term debt) The estimated fair value of long-term debt is calculated by applying a discount rate to the total of principal and interest. The discount rate is based on the assumed interest rate if a similar new loan is entered into. The Basis of our Value Creation 13. RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses included in general and administrative expenses and cost of sales amounted to ¥442 million and ¥483 million ($4,665 thousand) for the years ended December 31, 2019 and 2020, respectively.

14. IMPAIRMENT LOSS

For the year ended December 31, 2019 Disclosure has been omitted because it does not have significant impact on the consolidated financial statements.

For the year ended December 31, 2020 The Company groups mining area and other assets as a basic unit that generates cash inflows independently of other groups of assets. In light of the substantial decline in crude oil prices resulting from the COVID-19-induced reduction in global energy demand and other factors, the recoverable amount of these groups of assets was expected to decrease; therefore, the Company reduced the respective carrying Performance and Financial Overview amounts of the assets listed below to the recoverable amounts, posting the reductions as impairment loss. Impairment loss Use Location Classification Thousands of Millions of yen U.S. dollars Construction in progress ¥ 97,097 $ 937,954 Assets related to Prelude FLNG Commonwealth of Australia Mining rights 31,965 308,780 Project Subtotal 129,062 1,246,734 Wells 11,178 107,979 Machinery, equipment Assets related to Tight Oil 1,595 15,407 Texas, United States and vehicles Project (Eagle Ford) Mining rights 20,462 197,662 Subtotal 33,235 321,049 Wells 3,553 34,321 Machinery, equipment Assets related to Lucius Oil 2,421 23,386 Gulf of Mexico, United States and vehicles Field Mining rights 12,719 122,865 Subtotal 18,693 180,573 Other 8,948 86,437 Total ¥189,940 $1,834,814 The recoverable amount of the assets related to Prelude FLNG Project, Tight Oil Project (Eagle Ford) and Lucius Oil Field is reasonably estimated by discounting the future cash flows at a rate of 7.9-10.7%.

INPEX CORPORATION Annual Report 2020 87

015_0219287912106.indd 87 2021/06/29 23:29:48 15. RETIREMENT BENEFITS

Retirement benefits for the years ended December 31, 2019 and 2020 are as follows:

(a) Defined benefit plans (1) Reconciliation of beginning and ending balances of the retirement benefit obligations (excluding plans included in (3)) Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Balance at beginning of the period ¥21,611 ¥23,413 $226,168 Service cost 778 1,176 11,360 Interest cost 166 91 879 Actuarial loss (gain) 1,740 (307) (2,965) Retirement benefits paid (882) (1,107) (10,693) Balance at end of the period ¥23,413 ¥23,267 $224,758

(2) Reconciliation of beginning and ending balances of plan assets at fair value (excluding plans included in (3)) Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Balance at beginning of the period ¥16,047 ¥16,147 $155,979 Expected return on plan assets 200 270 2,608 Actuarial gain (loss) 14 (397) (3,835) Contributions to the plans 469 565 5,457 Retirement benefits paid (585) (694) (6,704) Balance at end of the period ¥16,147 ¥15,891 $153,506

(3) Reconciliation of beginning and ending balances of liability for retirement benefits applying simplified methods Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Balance at beginning of the period ¥702 ¥744 $7,187 Retirement benefit expenses 142 185 1,787 Retirement benefits paid (57) (65) (627) Contributions to the plans (14) (17) (164) Other (27) (64) (618) Balance at end of the period ¥744 ¥782 $7,554

(4) Reconciliation between retirement benefit obligations and plan assets at fair value and liability for retirement benefits and asset for retirement benefits on the consolidated balance sheet Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Retirement benefit obligations (funded plans) ¥23,640 ¥23,512 $227,125 Plan assets at fair value (16,343) (16,090) (155,428) 7,296 7,421 71,686 Retirement benefit obligations (unfunded plans) 714 737 7,119 Net liability (asset) on consolidated balance sheet 8,011 8,158 78,806

Liability for retirement benefits 8,011 8,158 78,806 Net liability (asset) on consolidated balance sheet ¥ 8,011 ¥ 8,158 $ 78,806 * Including plans applying simplified methods.

(5) Details of retirement benefit expenses Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Service cost ¥ 778 ¥1,176 $11,360 Interest cost 166 91 879 Expected return on plan assets (200) (270) (2,608) Amortization of actuarial loss (gain) 1,725 90 869 Retirement benefit expenses under simplified methods 142 185 1,787 Retirement benefit expenses for defined benefit plans ¥2,612 ¥1,274 $12,306

88 INPEX CORPORATION Annual Report 2020

015_0219287912106.indd 88 2021/06/29 23:29:48 INPEX’s Vision and Value Creation (6) Plan assets (excluding plans applying simplified methods) Components of plan assets 2019/12 2020/12 Stock 22% 26% General accounts 44 45 Bonds 19 23 Other 15 6 Total 100% 100%

(7) Basis of measurement for long-term expected return rate on plan assets The expected long-term return rate on plan assets is determined based on the current and expected future distribution of plan assets and the current and expected future long-term return rate on various assets of which plan assets are composed.

(8) Basis of the actuarial assumptions 2019/12 2020/12 Growth Strategies for Value Creation Discount rate 0.4% 0.5% Long-term expected return rate on plan assets 1.8% 1.8%

(b) Defined contribution plans The Group’s contributions for defined contribution plans amounted to ¥2,130 million and ¥2,147 million ($20,739 thousand) for the years ended December 31, 2019 and 2020, respectively.

16. ASSET RETIREMENT OBLIGATIONS

(a) Asset retirement obligations recognized in the consolidated balance sheet The changes in asset retirement obligations for the years ended December 31, 2019 and 2020 are as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Balance at beginning of the period ¥113,416 ¥136,882 $1,322,275 The Basis of our Value Creation New obligations 4,545 1,017 9,824 Accretion expenses 2,524 2,835 27,386 Obligations settled (1,540) (211) (2,038) Change in estimates *1 18,968 40,689 393,054 Other *2 (1,031) (7,591) (73,328) Balance at end of the period ¥136,882 ¥173,622 $1,677,183 *1 “Change in estimates” for the years ended December 31, 2019 and 2020 mainly reflects the revised discount rate of certain subsidiaries. *2 “Other” mainly includes the change due to foreign exchange rates fluctuation.

(b) Asset retirement obligations other than those recognized in the consolidated balance sheet Regarding domestic oil and gas production facilities and gas supply and marketing facilities, the Group has obligations to prevent mine pollution at abandoned well sites after the completion of the production under Mine Safety Act and restore sites to their original condition

at the time of business termination in accordance with lease contracts. Performance and Financial Overview Among these facilities, certain domestic oil and gas production facilities are operated complementarily and holistically in connection with the LNG terminal and it is impossible to determine the timing of decommission since it is difficult to formulate reasonable long-term production plan considering the balance between the production and the inflow of LNG at this time. The Group plans to operate domestic gas supply and marketing facilities permanently as highly public infrastructures for energy supply. The Group also has obligations to decommission mines with respect to certain overseas oil production facilities. However, it is difficult to estimate retirement costs since the information about decommissioning work including the assets subject to the work based on the approval by the government of oil-producing country has not been specified yet. Therefore, it is impossible to reasonably estimate the relevant asset retirement obligations as of December 31, 2020, and the Group does not recognize them in the consolidated balance sheet.

INPEX CORPORATION Annual Report 2020 89

015_0219287912106.indd 89 2021/06/29 23:29:48 17. GOODWILL

The changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2020 are as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Balance at beginning of the period ¥47,275 ¥42,206 $407,708 Goodwill acquired during the period — — — Amortization of goodwill (5,070) (6,760) (65,301) Balance at end of the period ¥42,206 ¥35,445 $342,397

18. LEASES

Future minimum lease payments subsequent to December 31, 2020 for operating lease transactions are summarized as follows:

As Lessee Millions of yen Thousands of U.S. dollars 2021 ¥ 1,825 $ 17,629 2022 and thereafter 8,749 84,515 Total ¥10,575 $102,154

19. CONTINGENT LIABILITIES

As of December 31, 2020, the Company and its consolidated subsidiaries were contingently liable as guarantors of indebtedness of affiliates in the aggregate amount of ¥344,690 million ($3,329,694 thousand).

20. SEGMENT INFORMATION

Segment information for the years ended December 31, 2019 and 2020

(a) Overview of reportable segments The reportable segments for the Group’s oil and natural gas development activities are composed of individual mining area and others for which separate financial information is available in order for the Board of Directors to make Group management decisions. Since the Group operates oil and natural gas businesses globally, the Group’s reportable segments are the mining areas and others by geographical region, categorized in “Japan”, “Asia & Oceania” (mainly Indonesia, Australia and East Timor), “Eurasia (Europe & NIS)” (mainly Azerbaijan and Ka- zakhstan), “Middle East & Africa” (mainly United Arab Emirates) and “Americas.” The Company produces oil and natural gas in each segment. In addition, the Company conducts purchasing and marketing activities for natural gas and petroleum products and others in “Japan” segment.

(b) Basis of measurement for sales, income (loss), assets and other items by reportable segment Accounting policies for the reportable segments are substantially the same as those described in “Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”. Internal sales between segments are based on prices for third-party transactions.

(c) Information on sales, income (loss), assets and other items by reportable segment Millions of yen Year ended Eurasia Middle East & Japan Asia & Oceania Americas Total Adjustments*1 Consolidated*2 December 31, 2019 (Europe & NIS) Africa Sales to third parties ¥ 97,038 ¥ 240,927 ¥ 79,054 ¥569,166 ¥13,819 ¥1,000,005 ¥ — ¥1,000,005 Intercompany sales and transfers between — 4,465 — — — 4,465 (4,465) — segments Total sales 97,038 245,392 79,054 569,166 13,819 1,004,470 (4,465) 1,000,005 Segment income (loss) 13,156 117,801 20,806 364,467 (6,545) 509,685 (11,044) 498,641 Segment assets 274,520 3,063,677 596,930 562,032 82,630 4,579,791 270,203 4,849,995 Other items Depreciation and 11,685 72,890 5,004 37,410 7,811 134,802 826 135,629 amortization Amortization of — — — — (192) (192) 5,214 5,022 goodwill Investment to affiliates accounted for by 1,904 257,139 12,440 24,421 — 295,905 1,060 296,965 the equity-method Increase of tangible fixed assets and ¥ 2,598 ¥ 74,784 ¥ 6,736 ¥52,384 ¥49,110 ¥ 185,614 ¥ 997 ¥ 186,612 intangible assets

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Millions of yen Year ended Eurasia Middle East & Japan Asia & Oceania Americas Total Adjustments*1 Consolidated*2 December 31, 2020 (Europe & NIS) Africa Sales to third parties ¥115,838 ¥ 220,969 ¥ 68,369 ¥352,388 ¥13,481 ¥ 771,046 ¥ — ¥ 771,046 Intercompany sales and transfers between — 5,320 — — — 5,320 (5,320) — segments Total sales 115,838 226,290 68,369 352,388 13,481 776,367 (5,320) 771,046 Segment income (loss) 14,341 56,522 4,481 186,408 (2,128) 259,625 (11,154) 248,471 Segment assets 255,069 3,024,426 572,642 493,092 24,455 4,369,687 264,831 4,634,518 Other items Depreciation and 15,075 100,812 6,923 42,476 7,938 173,227 871 174,098 amortization

Amortization of Growth Strategies for Value Creation — — — — (192) (192) 6,952 6,760 goodwill Investment to affiliates accounted for by 2,014 198,065 14,417 12,471 — 226,969 1,205 228,175 the equity-method Increase of tangible fixed assets and ¥ 4,990 ¥ 118,840 ¥ 5,909 ¥ 46,589 ¥ 7,783 ¥ 184,113 ¥ 938 ¥ 185,052 intangible assets

Thousands of U.S. dollars Year ended Eurasia Middle East & Japan Asia & Oceania Americas Total Adjustments*1 Consolidated*2 December 31, 2020 (Europe & NIS) Africa Sales to third parties $1,118,991 $2,134,553 $660,442 $3,404,057 $130,226 $7,448,280 $ — $ 7,448,280 Intercompany sales and transfers between — 51,391 — — — 51,391 (51,391) — segments

Total sales 1,118,991 2,185,954 660,442 3,404,057 130,226 7,499,681 (51,391) 7,448,280 The Basis of our Value Creation Segment income (loss) 138,533 546,000 43,286 1,800,695 (20,556) 2,507,969 (107,747) 2,400,222 Segment assets 2,463,958 29,215,861 5,531,704 4,763,253 236,234 42,211,041 2,558,259 44,769,300 Other items Depreciation and 145,624 973,840 66,875 410,316 76,680 1,673,367 8,413 1,681,781 amortization Amortization of — — — — (1,854) (1,854) 67,156 65,301 goodwill Investment to affiliates accounted for by 19,455 1,913,301 139,267 120,469 — 2,192,513 11,640 2,204,163 the equity-method Increase of tangible fixed assets and $ 48,203 $1,147,990 $ 57,080 $ 450,048 $ 75,183 $1,778,525 $ 9,061 $ 1,787,596 intangible assets Performance and Financial Overview *1 Adjustments include elimination of inter-segment transactions and corporate incomes, expenses and assets that are not allocated to a reportable segment. *2 Segment income is reconciled with operating income on the consolidated statement of income.

(d) Products and service information (Sales to third parties) Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Crude oil ¥ 764,039 ¥505,517 $4,883,278 Natural gas (excluding LPG) 219,970 247,854 2,394,261 LPG 3,128 2,737 26,439 Other 12,867 14,937 144,290 Total ¥1,000,005 ¥771,046 $7,448,280

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015_0219287912106.indd 91 2021/06/29 23:29:48 (e) Geographical information (Sales) Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Japan ¥ 461,267 ¥350,811 $3,388,823 Asia & Oceania (excluding China) 349,430 224,183 2,165,600 China 58,710 90,335 872,633 Other 130,597 105,716 1,021,213 Total ¥1,000,005 ¥771,046 $7,448,280 *Sales are classified by country or region based on the geographical location of customers.

(Tangible fixed assets) Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Japan ¥ 235,211 ¥ 224,534 $ 2,168,991 Australia 1,751,009 1,573,641 15,201,323 United Arab Emirates 247,419 251,290 2,427,453 Other 41,732 20,317 196,261 Total ¥2,275,372 ¥2,069,783 $19,994,039

(f) Information by major customer (Sales to major customer) Year ended December 31, 2019 Millions of yen Segment Shell International Eastern Trading Company ¥124,787 Middle East & Africa Ichthys LNG Pty Ltd 110,689 Asia & Oceania JXTG Nippon Oil & Energy Corporation ¥108,496 Middle East & Africa

Year ended December 31, 2020 Millions of yen Thousands of U.S. dollars Segment Ichthys LNG Pty Ltd ¥121,521 $1,173,889 Asia & Oceania

(g) Information on impairment loss from fixed assets Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Japan ¥796 ¥ — $ — Asia & Oceania — 138,011 1,333,181 Americas — 51,929 501,632 Total ¥796 ¥ 189,940 $ 1,834,814

21. RELATED PARTY TRANSACTIONS

There are the following related party transactions for the years ended December 31, 2019 and 2020.

(a) Related Party Transactions (1) Transactions with non-consolidated subsidiaries and affiliated companies Year ended December 31, 2019 Name of Description of Capital Transaction Amounts Amounts related Location Nature of operations Voting interest the business Title of account investment detail party relationship Millions of yen Millions of yen Long-term Loans of Transportation, ¥113,612 loans ¥713,837 funds*1 liquefaction and receivable Ichthys Western sales of oil and Accounts $4,506,860 Indirectly Capital Sales of finished LNG Australia, natural gas through 110,689 receivable— 12,344 thousand 66.25% subscription goods*2 Pty Ltd Australia pipeline in WA-50-L trade block in offshore Guarantee of Western Australia ¥598,676 — ¥ — liabilities*3

*1 The Company determines the interest rate on loans of funds based on market interest rates in a reasonable and appropriate manner. *2 All transactions were conducted under general transactional conditions, which are the same as those used in transactions with independent third parties. *3 Guarantee of liabilities are for securing loans from financial institutions. In addition, “Amounts” are guaranteed balance by the Company as of December 31, 2019.

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015_0219287912106.indd 92 2021/06/29 23:29:48 INPEX’s Vision and Value Creation Year ended December 31, 2020 Amounts Amounts Name of Description of Capital Voting Transaction Thousands Title of Thousands related Location Nature of operations the business Millions of Millions of investment interest detail of U.S. account of U.S. party relationship yen yen dollars dollars Current assets, other ¥ 36,398 $ 351,603 (short-term Loans of loans 1 ¥ 84,713 $ 818,324 funds* receivable) Long-term loans 906,852 8,760,162 receivable*2 Transportation, Current assets, liquefaction and Interest Ichthys Western sales of oil and 31,690 306,124 other 1,043 10,075 $4,506,860 Indirectly Capital Income*1 LNG Australia, natural gas through (interest Growth Strategies for Value Creation thousand 66.25% subscription Pty Ltd Australia pipeline in WA-50-L receivable) block in offshore Sales of Accounts Western Australia finished 121,521 1,173,889 receivable— 10,431 100,763 goods*3 trade Guarantee of 311,386 3,007,979 — — — liabilities*4 Current Guarantee assets, commission ¥ 6,103 $ 58,954 other ¥ 136 $ 1,313 received*4 (accrued revenue)

*1 The Company determines the interest rate on loans of funds based on market interest rates in a reasonable and appropriate manner. The interest rate on certain loans of funds is zero. *2 Long-term loans receivable includes increases by purchases of long-term loans receivable in the amount of ¥201,769million ($1,949,082 thousand). *3 All transactions were conducted under general transactional conditions, which are the same as those used in transactions with independent third parties. *4 Guarantee of liabilities are for securing loans from financial institutions, and the Company receives guarantee commissions based on the amount of the guarantees. In addition, “Amounts” of “Guarantee of liabilities” are guaranteed balances by the Company as of December 31, 2020. The Basis of our Value Creation (2) Transactions with fellow subsidiaries and other affiliated companies Year ended December 31, 2019 None

Year ended December 31, 2020 Description Amounts Amounts Name of Capital Voting of the Transaction Thousands Title of Thousands related Location Nature of operations Millions of Millions of investment interest business detail of U.S. account of U.S. party yen yen relationship dollars dollars

Acceptance of debt ¥132,764 $1,282,496 — ¥ — $ — Japan Oil, 2 Support for guarantees* Gas and Acceptance ¥1,069,100 exploration and Metals Minato-ku, Tokyo None of debt million*1 developmen of oil National guarantees Current and others Corporation Payment of liabilities, guarantee ¥ 1,415 $ 13,668 other ¥333 $3,216 Performance and Financial Overview fees*2 (accrued expenses)

*1 The amount of “Capital investment” is as of September 30, 2020. *2 Japan Oil, Gas and Metals National Corporation guarantees securing loans from financial institutions, and receives guarantee fees based on the amount of the guarantees. In addition, “Amounts” of “Acceptance of debt guarantees” are guaranteed balances by Japan Oil, Gas and Metals National Corporation as of December 31, 2020.

(b) Note related to the parent company or significant affiliated companies The significant affiliated company for the years ended December 31, 2019 and 2020 is Ichthys LNG Pty Ltd. The summary of its financial- in formation is as follows: Millions of yen Thousands of U.S. dollars 2019/12 2020/12 2020/12 Total current assets ¥ 130,424 ¥ 143,769 $ 1,388,804 Total fixed assets 3,720,066 3,457,635 33,400,647 Total current liabilities 325,927 331,477 3,202,057 Total long-term liabilities 3,101,152 2,941,567 28,415,446 Total net assets 423,410 328,359 3,171,937

Net sales 370,598 417,581 4,033,819 Net income (loss) before income taxes (35,863) (31,983) (308,954) Net income (loss) ¥ (46,609) ¥ (39,566) $ (382,206)

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015_0219287912106.indd 93 2021/06/29 23:29:48 Independent Auditor’s Report

Independent Auditor’s Report

The Board of Directors INPEX CORPORATION

Opinion We have audited the accompanying consolidated financial statements of INPEX CORPORATION and its consolidated subsidiaries (the Group), which comprise the consolidated balance sheet as at December 31, 2020, and the consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended, and notes to the consolidated financial statements. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management, the Audit and Supervisory Board Member and the Audit and Supervisory Board for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern and disclosing, as required by accounting principles generally accepted in Japan, matters related to going concern. The Audit and Supervisory Board Member and the Audit and Supervisory Board are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. • Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

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• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with accounting principles generally accepted in Japan. Growth Strategies for Value Creation • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit and Supervisory Board Member and the Audit and Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit and Supervisory Board Member and the Audit and Supervisory Board with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan Our firm and its designated engagement partners do not have any interest in the Group which is required to be The Basis of our Value Creation disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Convenience Translation The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended December 31, 2020, are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidated financial statements.

Ernst & Young ShinNihon LLC Tokyo, Japan Performance and Financial Overview March 25, 2021

/s/ Hiroaki Kosugi Designated Engagement Partner Certified Public Accountant

/s/ Satoshi Takahashi Designated Engagement Partner Certified Public Accountant

/s/ Takeshi Yoshida Designated Engagement Partner Certified Public Accountant

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015_0219287912106.indd 95 2021/06/29 23:29:48 Subsidiaries and Affiliates As of December 31, 2020

Consolidated Subsidiaries

Issued capital Voting rights Company name *1 *2 Main business (Millions of yen) held by us (%) Exploration, development, production and sales of oil INPEX Sahul, Ltd. 4,600 100.00% and natural gas in the PSC TL-SO-T 19-12 Block in East Timor Exploration, development, production and sales of oil INPEX Alpha, Ltd. 8,014 100.00% and natural gas in the WA-35-L Block and others, Australia Financing for oil and natural gas exploration, develop- INPEX Browse, Ltd. 426,640 100.00% ment, production and sales in the WA-285-P Block and others, Australia Financing for oil and natural gas exploration, develop- 9,681,023 100.00% ment, production and sales and construction and op- INPEX Holdings Australia Pty Ltd (Thousands of (100.00%) eration of the LNG plant for the Ichthys LNG project, U.S. dollars) Australia 804,456 Exploration, development, production and sales of oil 100.00% INPEX Ichthys Pty Ltd (Thousands of and natural gas in the Ichthys Gas-Condensate Field (100.00%) U.S. dollars) (WA-50-L/ WA-51-L), Australia 420,150 100.00% Exploration of oil and natural gas in the WA-285-P INPEX Browse E&P Pty Ltd (Thousands of (100.00%) Block and others, Australia U.S. dollars) Exploration and development of oil and natural gas in INPEX Masela, Ltd. 64,082 51.93% the Masela Block in the Arafura Sea, Indonesia Exploration, development, production and sales of oil INPEX South Makassar, Ltd. 1,097 100.00% and natural gas in the Sebuku Block in the Makassar Strait, Indonesia 1,011,000 Exploration and development, production and sales of INPEX Oil & Gas Australia Pty Ltd (Thousands of 100.00% oil and natural gas in the Prelude Gas Field (WA-44-L) U.S. dollars) and others, Australia Exploration of oil and natural gas in the Babar Selaru INPEX Babar Selaru, Ltd. 10 51.01% Block in the eastern sea area, Indonesia Exploration and development, production and sales of Teikoku Oil (Con Son) Co., Ltd. 10 100.00% oil and natural gas in Blocks 05-1b/ 05-1c in offshore southern Vietnam Exploration, development, production and sales of oil INPEX Southwest Caspian Sea, Ltd. 53,594 51.00% in the ACG Oil Fields, Azerbaijan Exploration, development, production and sales of oil INPEX North Caspian Sea, Ltd. 100,469 51.00% in the Offshore North Caspian Sea Block, Kazakhstan Exploration, development, production and sales of oil Japan Oil Development Co., Ltd. 5,532 100.00% in the Upper Zakum, Satah and Umm Al Dalkh oil fields, Offshore Abu Dhabi, United Arab Emirates 600,000 Exploration, development, production and sales of oil JODCO Lower Zakum Limited (Thousands of 100.00% in the Lower Zakum Oil Field Offshore Abu Dhabi, U.S. dollars) United Arab Emirates 111 Exploration, development, production and sales of oil JODCO Onshore Limited (Thousands of 65.76% in ADCO Block in onshore Abu Dhabi, United Arab U.S. dollars) Emirates 50 Exploration of oil in onshore Block 4 in Abu Dhabi, JODCO Exploration Limited (Thousands of 100.00% United Arab Emirates U.S. dollars) Exploration, development, production and sales of oil Teikoku Oil (D.R. Congo) Co., Ltd. 10 100.00% in the Offshore D.R. Congo Block 265,600 Investment in oil exploration, development, production INPEX Angola Block 14 Ltd. (Thousands of 100.00% and sales in Block 14, Offshore Angola U.S. dollars) Investment in exploration, development, production and sale of natural gas in the Copa Macoya Block and 16.2 Teikoku Oil & Gas Venezuela, C.A. 100.00% exploration, development, production and sale of oil (Bolivars) in the Guarico Oriental Block, Bolivarian Republic of Venezuela

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Issued capital Voting rights Company name *1 *2 Main business (Millions of yen) held by us (%) 19,793 Exploration, development, production and sales of oil INPEX Americas, Inc. (Thousands of 100.00% and natural gas in the Lucius Oil Field and others, in U.S. dollars) the U.S. Gulf of Mexico 1,043,488 Exploration, development, production and sales of INPEX Gas British Columbia Ltd. (Thousands of 45.09% natural gas in the shale gas blocks of the Horn River, Canadian dollars) Cordova and Liard basins in British Columbia, Canada

Exploration, development, production and sales of oil Growth Strategies for Value Creation INPEX Eagle Ford, LLC — 100.00% in the Eagle Ford shale play in Texas, US Natural gas transportation, pipeline operation, mainte- Teiseki Pipeline Co., Ltd. 100 100.00% nance and management Investment in Darwin LNG Pty Ltd, which constructs 42,001 and operates the undersea pipeline and LNG plant INPEX DLNGPL PTY Ltd (Thousands of 100.00% connecting the Bayu Undan Gas-Condensate Field and U.S. dollars) Darwin (Australia) 63,800 Investment in the pipeline construction and manage- INPEX BTC Pipeline, Ltd. (Thousands of 100.00% ment business that connects Baku (Azerbaijan), Tbilisi U.S. dollars) (Georgia) and Ceyhan (Turkey) Sales, agency and brokerage of crude oil and market INPEX Trading, Ltd. 50 100.00% research and sales planning in connection with oil and natural gas sales 62.67% Saitama Gas Co., Ltd. 60 City gas sales (13.17%) The Basis of our Value Creation Supply of business capital, etc. to geothermal power INPEX Geothermal Sarulla, Ltd. 10 100.00% project in Sarulla Geothermal Field, Indonesia 4,606,000 INPEX FINANCIAL SERVICES The Group’s intercompany finance operations and (Thousands of 100.00% SINGAPORE PTE. LTD. support for financial administration of projects U.S. dollars) 33 other subsidiaries

Equity-method affiliates

Issued capital Voting rights Company name *1 *2 Main business (Millions of yen) held by us (%) 338,601 Exploration, development, production and sales of

MI Berau B.V. (Thousands of 44.00% natural gas in the Berau Block and the Tangguh LNG Performance and Financial Overview U.S. dollars) Project, West Papua province, Indonesia 143,003 49.00% Supply of business capital, etc. to geothermal power PT Medco Geopower Sarulla (Thousands of (49.00%) project in Sarulla Geothermal Field, Indonesia U.S. dollars) Laying and maintenance of undersea pipeline from 4,506,860 the Ichthys Gas-Condensate Field to the Darwin 66.25% Ichthys LNG Pty Ltd (Thousands of Onshore LNG Plant in Australia, construction and (66.25%) U.S. dollars) operation of the LNG plant and sales of LNG, LPG and condensate. Supply of business capital for exploration, develop- Japan South Sakha Oil Co., Ltd. 7 25.00% ment, production and sales of oil in Zapadno-Yarak- tinsky and Bolshetirsky blocks, Russia 18 49.99% Exploration, development, production and sales of Angola Block 14 B.V. (Thousands of (49.99%) oil in Block 14, Offshore Angola euros) 15 other equity-method affiliates

*1 Values in the column labeled “Issued capital (Millions of yen)” are rounded to the nearest unit. *2 Values in parentheses in the column labeled “Voting rights held by us (%)” indicate the ratio of indirectly held voting rights. These values are included in the total.

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015_0219287912106.indd 97 2021/06/29 23:29:48 Business Risks

The following is a list of key items that can be considered potential risk factors relating to the business of INPEX CORPORATION, its subsidiaries and affiliates (the “Group”). From the standpoint of information disclosure to investors and shareholders, we proactively disclose matters that are not necessarily the business risks but that can be considered to have important effects on the investment decisions of investors. The following discussion does not completely cover all business risks relating to the Group’s businesses. Unless stated otherwise, forward-looking statements in the discussion are the judgment of the Group as of March 26, 2021 and are subject to change after such date due to various factors, including changes in social and economic circumstances.

I. MAJOR BUSINESS RISKS

1. CHARACTERISTICS OF AND RISKS ASSOCIATED WITH THE OIL AND NATURAL GAS DEVELOPMENT BUSINESS

(1) Risk of disasters, accidents, system failures, etc. The Company strives to prevent accidents and incidents from Oil and natural gas development entails the risk that operational happening to avoid these risks of disasters, accidents, system fail- accidents and disasters may occur in the process of exploration, ures and other developments from materializing. However, risks development, production and transportation. Various information are always present, and if they materialize, they may have a sig- systems are used in operations. While safety measures are in nificantly adverse effect on the Group’s results. place for these systems, there is the risk that operations may be Although the Group maintains insurance against loss or dam- suspended due to unforeseen failures of these systems caused by age in the natural course of its operations to a reasonable extent, events such as natural disasters and cyberattacks. Should such an insurance may not cover all damages. Also, such accidents or is- unforeseen failure of information systems, or an accident, disaster sues could result in administrative sanctions or damage the or other such incident occur, there is the risk that costs may be in- Group’s credibility and reputation as an oil and natural gas devel- curred, excluding compensation covered by insurance, due to in- opment company, and could therefore have an adverse effect on frastructural damage, as well as the risk of a major accident or future business activities. disaster involving loss of life. In addition, a cost for recovery or opportunity loss from the interruption of operations could occur. (2) Risk of failure in exploration, development or Furthermore, the spread of infectious diseases such as production COVID-19 may lead to a shortage of employees required for op- Payment of compensation is ordinarily necessary to acquire par- erations and other necessities, difficulty in procuring materials, ticipating interests. Also, surveying and exploratory drilling ex- equipment and services as well as transportation of produced penses (exploration expenses) become necessary at the time of goods, instructions or orders from the governments of oil-produc- exploration activities for the purpose of discovering resources. ing countries to suspend operations, changes in the policies of When resources are discovered, it is necessary to further invest in partners in a joint business and other developments. Such events substantial development expenses according to various condi- may fully or partly suspend or delay operations. tions, including the size of the recoverable reserves, development For its domestic natural gas business, the Company has con- costs and details of agreements with oil-producing countries (in- tinued to procure natural gas regasified from imported LNG as cluding gas-producing countries; hereinafter the same shall source gas since January 2010. Furthermore, the Company has apply). procured imported LNG as source gas in connection with its There is, however, no guarantee of discovering resources on Naoetsu LNG Terminal from August 2013. An inability to procure a scale that makes development and production feasible. The natural gas regasified from imported LNG and other imported probability of such discoveries is considerably low despite various gas as source gas due to issues concerning suppliers or the Com- technological advances in recent years, and even when resources pany’s Naoetsu LNG Terminal, or compromised pipeline opera- are discovered the scale of the reserves does not necessarily tions due to accidents or disasters along the pipeline network, make commercial production feasible. For this reason, the Group may interfere with the Company’s ability to supply its customers. conservatively recognizes expenses related to exploration invest- This could in turn have an adverse effect on the Company’s do- ment in our consolidated financial statements. The Group main- mestic natural gas business. tains financial soundness by booking 100% as expenses in the With regard to environmental problems, there is a possibility case of concession agreements (including mining rights awarded of soil contamination, air pollution, and freshwater and seawater in Japan as well as permits, licenses and leases awarded overseas) pollution. The Group has established a “Health, Safety and Envi- and by booking 100% of exploration project investment as allow- ronment Policy,” and as a matter of course abides by the environ- ances in the case of production sharing agreements. In addition, mental laws, regulations, and standards of the countries in which if there are impossibilities of recovery of investment in a develop- we operate and give due consideration to the environment in the ment project, we also book the corresponding amount of invest- conduct of business, based on our independent guidelines. In the ment in the development project as allowances while considering event of an operating accident or disaster which impacts the envi- the recovery possibility of each project. ronment, there is the possibility of incurring a response or cost To increase recoverable reserve and production volumes, the burden for recovery from that incident, of incurring obligation of Group plans to always take an interest in promising properties payment for procedural costs, compensation or other cost related and plans to continue exploration investment. At the same time, to the start of civil, criminal or government procedures, or of in- we plan to invest in development projects, including the acquisi- curring loss from the interruption of operations. Furthermore, in tion of interests in discovered undeveloped fields and producing the event of changes to or the strengthening of the environmen- fields,so as to maintain an overall balance between assets at the tal laws, regulations, and standards (including support measures exploration, development, and production stages. for the promotion of new, renewable energies) of the countries in Although exploration and development (including the acquisi- which we operate, it may be necessary for the Group to devise tion of interests) are necessary to secure the reserves essential to additional measures with an associated cost burden and it could the Group’s future sustainable business development, each type affect on the financial results of the Group.

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of investment involves technological and economic risks, and result in cancellation of an agreement before the expiration date. failed exploration or development could have an adverse effect And in the overseas natural gas development and production on the results of the Group’s operations. activities, in many cases we are selling and supplying gas based on long-term sales and supply contracts in which expiration dates (3) Dependence on specific geographical areas are stipulated. We plan to make efforts with partners to extend or or assets for production volume re-extend the expiration date before the deadline stipulated in The Group engages in stable production of crude oil and natural these contracts. Nevertheless, inability to extend the contracts, or gas in the Ichthys gas-condensate field (Australia), the on shore the occurrence of cases in which extension is made but sales and and offshore Abu Dhabi oil fields (United Arab Emirates), the supply volumes are reduced, could have an adverse effect on the Minami Nagaoka Gas Field (Japan) and so on. The areas in which Group’s business or results. Growth Strategies for Value Creation the Group operates are spread broadly throughout Asia-Oceania (particularly Japan, Indonesia and Australia), the Middle East and (5) Crude oil, condensate, LPG and natural gas Africa, Eurasia including the Caspian Sea area and the Americas. reserves For fiscal 2020, however, the Asia and Oceania region accounted 1) Proved reserves for about 44% of the Group’s production volume and the Middle INPEX CORPORATION (the “Company”) commissioned DeGoly- East and Africa region accounted for about 39%, with these two er and MacNaughton, an independent petroleum engineering regions making up the vast majority of the Group’s operations. consultant in the United States, to assess the main proved re- The Group currently relies heavily on specific geographical ar- serves of the Group of which projects with a significant amount of eas and assets for its production volume, and the occurrence of future development investment might materially affect future per- operational issues at these assets could have an adverse effect on formance. An assessment of other projects was undertaken by the the Group’s operational results. Company. The definition of proved eservesr is based on the U.S. Securities and Exchange Commission’s (SEC) Regulation S-X, Rule (4) Contract expiration dates 4-10(a), which is widely known among U.S. investors. Regardless Expiration dates are often stipulated in the agreements related to of whether the deterministic approach or probabilistic approach participating interests, which form the basis of the Group’s over- is used in evaluation, proved oil and gas reserves are estimated seas business activities. Should an agreement in which an expira- quantities that geological and engineering data demonstrate with

tion date is stipulated not be extended, re-extended or renewed, reasonable certainty to be recoverable from known reservoirs un- The Basis of our Value Creation or should the terms and conditions be less favorable (including der existing economic and operating conditions, from the date of a reduction in the proportion of the Group’s interest) than those evaluation through to the expiration date of the agreement grant- existing at the time of extension, re-extension or renewal, there ing operating rights (or in the event of evidence with a reasonable could be an adverse effect on the Group’s results. INPEX Group certainty of agreement, extension through to the expiration of the policy to work with our business partners toward the extension, projected extension period). For definition as “proved reserves,” re-extension or renewal of these agreements, should an existing operators must have a reasonable degree of certainty that the re- agreement not be extended, re-extended or renewed as a result covery of hydrocarbons has commenced or that the project will of agreement negotiations with the national petroleum company commence within an acceptable period of time. This definition is of an oil-producing country, or in the event of agreement terms widely regarded as being conservative. Nevertheless, the strict- and conditions (including a reduction in the Group’s participating ness of the definition does not imply any guarantee of the pro- interest) that are more disadvantageous than the situation at the duction of total reserves during a future production period. In this time of the extension, re-extension or renewal, this could have an context, when probabilistic methods are employed, there should adverse effect on the Group’s business or results. Even should the be at least a 90% probability that the quantities actually recovered agreements stipulating expiration dates be extended, re-extend- will equal or exceed the sum of estimated proved reserves. ed or renewed, we anticipate that the remaining recoverable re- For further details on proved reserves of crude oil, conden- Performance and Financial Overview serves at that time will have decreased due to production sate, LPG and natural gas held by the Group, including equi- developments. Although the Group is striving to acquire interests ty-method, affiliates accounted please see the section “Oil and that can substitute these properties, failure to acquire participat- Gas Reserves and Production Volume” on P. 107. ing interests in oil and gas fields to fully substitute for these prop- 2) Possibility of changes in reserves erties could have an adverse effect on the Group’s results. A reserve evaluation depends on the available geological and en- In addition, the period for exploration in oil and gas fields cur- gineering data from oil and gas reservoirs, the maturity of devel- rently under exploration is fixed by contracts, and in the case of opment plans and a considerable number of assumptions, factors fields where oil and/or gas reserves are found that are deemed to and variables including economic conditions as of the date such be commercialized, and the Company is unable to decide on the an estimate is made. Reserves may be revised in the future on the transition to the development stage by the expiration of the cur- basis of geological and engineering data as well as development rent contract, efforts will be made through negotiations with the plans and information relating to changes in economic and other government of the oil- or gas-producing country in question to conditions made newly available through progress in production have the periods extended. However, there remains the possibili- and operations. As a result, there is a possibility that reserves will ty that such negotiations may not be successfully concluded, in be restated upwards or downwards. As to the reserves under which event the Company would be forced to withdraw from op- a PSC, not only production, but also oil and gas prices, invest- erations in the oil or gas field concerned. Also, as a rule, when ments, recovery of investments due to contractual conditions and there has been a major breach of contract on the part of one par- remuneration fees may affect the economic entitlement. This may ty, it is customary for the other party to have the right to cancel cause reserves to increase or decrease. In this way, the assessed the agreement before the expiration date. The agreements for value of reserves could fluctuate because of various data, as- properties in these principal geographical business areas contain sumptions and changes of definition. similar provisions. The Group has never experienced early cancellation of an agreement due to breach of contract, and we do not anticipate such an occurrence in the future. Nevertheless, a major breach of contract on the part of a party to an agreement could

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015_0219287912106.indd 99 2021/06/29 23:29:48 (6) Operatorship In undertaking the joint business, participants in principle bear In the oil and natural gas development business, companies fre- a financial responsibility in proportion to their interest share. Any quently form business partnerships for the purpose of the disper- inability of a joint business partner to fulfill this financial responsi- sion of risk and financial burden. In such partnerships, one of the bility may adversely affect the project. companies becomes the operator, which performs the actual work and bears the responsibility for operations on behalf of the (8) In the oil and natural gas development partners. The companies other than the operator, as non-opera- business the period from exploration to sales tors, participate in the business by providing a predetermined is highly capital intensive and funds cannot amount of funds and either carefully examining the exploration be recovered for a long time and development plan devised and implemented by the opera- Considerable time and expense is required for exploration activi- tor, or participating in some operations. ties. Even when promising resources are discovered through ex- The Group intends to actively pursue operator projects, focus- ploration, substantial expenses including production facility ing on the large-scale Ichthys LNG and other projects taking into construction costs, and an extended period of time, are necessary consideration the effective application of business resources as at the development stage leading up to production. For this rea- well as the balance between operator and non-operator projects, son, a long period of 10 years or more is required from the time based on the Group’s knowhow and technical capability, which of exploration and development investment until the recovery of has been acquired through considerable operational experience funds through production and sales. In particular, the large-scale at each of the exploration, development and production stages. LNG projects require a very large amount of investment, and the The Company has significant expertise as an operator in the de- financing of these projects could be impacted by changes in the velopment and production of crude oil and natural gas both in economic and financial environment. Following the discovery of Japan and overseas as well as a wealth of know-how and knowl- resources, a delay in the development schedule or the loss of the edge accumulated over many years as a participant in LNG and economic viability of the properties during the development pro- other projects in such countries as Indonesia and Australia. In ad- cess leading up to production and the commencement of sales dition, we believe that by utilizing the services of specialized sub- could have an adverse effect on the Group’s operational results. contractors and highly experienced external consultants, Such delays or losses may occur due to changes in the business a practice similar to foreign oil companies including the majors, environment including a delay in the acquisition or modification it will be possible to execute business appropriately as an opera- of government approvals, the occurrence of unanticipated prob- tor including LNG projects. lems related to geological conditions, fluctuations in the price of Engaging in project coordination as an operator contributes oil or gas, fluctuations in foreign exchange rates, or escalating to the expansion of opportunities in acreage acquisition through prices of equipment and materials. In the case of LNG projects, enhancement of technical capabilities and greater presence in such delays or losses may occur due to an inability to complete oil-producing countries and the industry. At the same time, there such procedural requirements as FID owing to the lack of any are risks such as constraints on the recruitment of personnel with long-term contractual agreement with prospective purchasers specialized operational skills and an increase in financial commit- with respect to production. ments. Inability to adequately cope with such risks could have an adverse effect on the Group’s operational results. (9) Risk in relation to mine abandonment The Group books in its accounts, as an asset retirement obliga- (7) Project partners tion, the estimated present value of costs related to mine aban- In the oil and natural gas development business, as previously donment that will become necessary after finishing operation and mentioned, several companies often engage in joint business for production in oil and gas production facilities and the like in ac- the purpose of dispersion of risk and financial burden. In such cordance with agreements with the authorities of oil-producing cases, the partners generally enter into a joint operating agree- countries, applicable laws and regulations and the like. If it is later ment among themselves to decide on the decision-making pro- found that the estimated present value of those costs falls short cedure for execution of the joint business, or to decide on an due to a change in the procedures used for mine abandonment, operator that conducts business on their behalf. A company that a rise in expenses for procuring drilling materials and equipment is a partner in one property in which the Group is engaged in or any other reason, the Group will be required to increase the joint business may become a competitor in the acquisition of oth- amount of that asset retirement obligation, which could adversely er participating interests, even though the relationship with the affect the financial condition and results of operations of the partner may be good. Group.

2. EFFECTS OF FLUCTUATIONS IN CRUDE OIL PRICES, NATURAL GAS PRICES, FOREIGN EXCHANGE AND INTEREST RATES ON FINANCIAL RESULTS

(1) Effects of fluctuations in crude oil prices and countries and agreements between oil-producing countries on natural gas prices on financial results production volume and other matters. The vast majority of these Crude oil prices and natural gas prices at our overseas businesses factors are beyond the control of the Company. In this regard, are largely determined by international market conditions. In ad- INPEX is not in a position to accurately predict movements in fu- dition, these prices fluctuate significantly due to the influence of ture crude oil and natural gas prices. The Group’s sales and prof- a variety of factors including global and regional supply and de- its are subject to the effects of such price fluctuations. mand (including a growing downward pressure on demand due A fluctuation of US$1 in the price of crude oil is expected to have to the shift towards a net zero carbon society), trends and condi- a ¥6.6 billion impact on the Group for the year ending December tions in the global economy (including the impact of the contrac- 31, 2021, as estimated at the beginning of the fiscal period. Such tion of economic activity due to the global pandemic) and effects are highly complex and are caused by the following financial markets as well as trends in the policies of oil-producing factors.

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1) Although a majority of natural gas selling prices in overseas profit and loss is subject to the effects of the foreign exchange businesses are linked to crude oil prices, they are not in direct market. In the event of appreciation in the value of the yen, proportion to crude oil prices. yen-denominated sales and profits decrease. Conversely, in the 2) Because sales and profits are determined on the basis of crude event of depreciation in the value of the yen, yen-denominated oil prices and natural gas prices at the time sales are booked, sales and profits increase. actual crude oil transaction prices and the average oil price On the other hand, when borrowing necessary funds, the during the accounting period do not necessarily correspond. Company borrows in foreign currencies. In the event of apprecia- Moreover, although the Company is taking measures to reduce tion in the value of the yen, a foreign exchange gain on for- a portion of the risks associated with crude oil price fluctuations, eign-currency denominated borrowings is recorded as a result of these measures by no means cover all possible risks. As a result, fiscal year-end conversion; in the event of depreciation in the val- Growth Strategies for Value Creation the impact of fluctuations in crude oil prices cannot be complete- ue of the yen, a foreign exchange loss is incurred. For this reason, ly eliminated. the exchange risk associated with the above business is dimin- Since the natural gas business in Japan uses domestically pro- ished and the impact of fluctuations in exchange rates on profit duced natural gas and imported LNG as feedstock, changes in and loss tends to be mitigated. A ¥1 appreciation/depreciation the market price for LNG have an effect on feedstock prices and against the U.S. dollar is expected to have a ¥2 billion impact on sales prices. There is also the possibility that changes in the com- the Group for the year ending December 31, 2021. Moreover, al- petitive environment associated with electric power and gas sys- though the Company is taking measures to reduce a portion of tem reforms will have an effect on natural gas sales prices and the risks associated with movements in foreign currency exchange sales volumes. rates, these measures by no means cover all possible risks. As Also, should the recovery of an amount invested in a business a result, the impact of fluctuations in foreign currency exchange asset held by the Group be no longer expected—due to a de- rates cannot be completely eliminated. crease in profitability associated with changes in the business environment on the basis of changes in future market conditions— (3) The effect of fluctuations in interest rates on since the Group would reduce that business asset’s book value to financial results reflect the level of recoverability and the amount of that reduction The Group raises some of the funds necessary for exploration and would be deemed impairment loss, there is the possibility that development operations through borrowing. Much of these bor-

there could be an adverse effect on the Group’s results of rowings are with variable-rates, long term borrowings based on The Basis of our Value Creation operations. the U.S. dollar six-month LIBOR rate. Accordingly, the Company’s profits are subject to the influence of fluctuations in U.S. dollar in- (2) The effect of fluctuations in exchange rates terest rates. Furthermore, although the Group has devised meth- on financial results ods to reduce a portion of interest rate risk, these methods do As most of the Group’s business consists of E&P conducted over- not cover all risks of interest rate fluctuation incurred by our seas, associated revenues (sales) and expenditures (costs) are de- Group and do not entirely remove the effect of fluctuations in in- nominated in foreign currencies (primarily in U.S. dollars), and terest rates.

3. CLIMATE CHANGE RISK In order to achieve the goals of the Paris Agreement and amid (2) Technical risk growing interest in addressing climate change on a global scale, If demand for the Group’s oil and natural gas products declines as efforts are being made worldwide to reduce greenhouse gas a result of accelerated progress in low-carbon related technolo- (GHG) emissions, which are recognized as the cause of climate gies and increased price competitiveness of low-carbon products, change and global warming. The Group identifies, assesses and this may have an adverse effect on the Group’s business and Performance and Financial Overview manages climate change risks in line with the recommendations performance. of the Task Force on Climate-related Financial Disclosures (TCFD), and specifically recognizes the following risks. The potential for (3) Market risk these climate change risks materializing is expected to grow over If investors and financial institutions place more importance than the medium to long term, and if they do, they could have an ad- in the past on direct and indirect GHG emissions from the Group’s verse effect on the Group’s performance. business as an evaluation item for climate change risk in investment and financing, the Group’s financing and its related terms (1) Policy/regulatory risk and conditions may be adversely affected. In the event that the countries and regions where the Group operates strengthen climate change actions based on the Paris (4) Physical risk Agreement or other accords, making changes or enhancements Acute risks due to extreme meteorological phenomena such as to environmental laws, regulations or standards, including carbon tropical cyclones and floods, and chronic risks such as rises in av- pricing systems such as emissions trading and carbon taxes, the erage temperature and sea levels over the long term may ad- Group would be required to implement additional measures and, versely affect the operations of the Group’s facilities. in turn, incur financial commitments that could have an adverse effect on the Group’s performance.

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015_0219287912106.indd 101 2021/06/29 23:29:49 4. OVERSEAS BUSINESS ACTIVITIES AND COUNTRY RISK The Group engages in a large number of oil and natural gas de- To manage health, safety and environment (HSE) risk, we have velopment projects overseas. Because the Group’s business activ- introduced the HSE Management System (HSEMS) Manual to fa- ities, including the acquisition of participating interests, are cilitate effective and consistent HSE management and improve conducted on the basis of contracts with the governments of HSE performance across the entire business. oil-producing countries and other entities, steps taken by oil-pro- To continuously improve the environment and occupational ducing countries to further tighten controls applicable to home health and safety in our oil and natural gas development busi- country natural resources, suspension of operation due to con- ness, we identify, analyze and evaluate HSE risks for each business flictsand other factors, and other such changes in the political, site based on the HSE Risk Management Procedure established economic, and social circumstances in such oil-producing coun- under the HSE Management System. Moreover, to formulate and tries or neighboring countries (including government involve- implement risk response measures, as well as to monitor HSE ment, stage of economic development, economic growth rate, risks, we have a system where the risk management status is regu- capital reinvestment, resource allocation, restriction of economic larly reported to headquarters. We are also working on the com- activities by global community, government control of foreign ex- pany-wide management of security-related risks based on various change or foreign remittances, and the balance of international guidelines and standards. payments), the application of OPEC production ceilings in OPEC We conduct financial risk management regarding crude oil member countries and changes in the legal system and taxation and natural gas prices, currency exchange rates, interest rates system of those countries (including the establishment or aboli- and securities prices by identifying their respective risks associat- tion of laws or regulations and changes in their interpretation or ed with fluctuations and establishing corresponding management enforcement) as well as lawsuits could have a significant impact and hedging methods. on the Group’s business or results unless the impact is compen- To tackle climate change, in our Business Development Strate- sated by insurance. gy—Towards a Net Zero Carbon Society by 2050 announced in Additionally, against the background of rising development January 2021, we have set our goal of achieving net zero carbon costs and other changes in the business environment, the prog- emissions by 2050 in line with the Paris Agreement objectives. To- ress of oil and gas projects and the need to address environmen- wards this goal, the Group will actively promote five business pil- tal issues, the governments of oil-producing countries may seek lars to offer solutions responding to the needs of society in an to renegotiate the fiscal conditions including conditions of exist- age of transformation towards a net zero carbon society. Specifi- ing oil contracts related to participating interests. In the event cally, we will (1) reduce CO2 emissions from upstream operations that fiscal conditions of contracts are altered, this could have an by promoting Carbon dioxide Capture, Utilization and Storage adverse effect on the Group’s business performance. (CCUS), (2) develop a hydrogen business, (3) enhance and emphasize renewable energy initiatives, (4) promote carbon recycling In order to respond to the risks listed in items 1 through 4 and cultivate new business opportunities and (5) promote forest above, we have introduced guidelines for economic and risk eval- conversation. By doing this, we will proactively respond to the uation we conduct on a per-project basis. After recognizing major shift towards a net zero carbon society and aim to be a pioneer of risks, we analyze and examine whether to take on new projects energy transformation. and take action against these risks. For existing projects, the IN- We manage country risk by, among others, establishing guide- PEX Value Assurance System (IVAS) Committee works as lines for handling country risks in the countries where we operate, a cross-organizational mechanism mainly for technical evaluation including setting a maximum target amount of accumulated in- at each project phase, such as exploration, evaluation and devel- vestments in high-risk countries. opment. At the same time, we conduct economic and risk evalua- Furthermore, we have developed a mechanism to counter le- tion in principle at least once a year. For major projects, we report gal risk, where business divisions and management can receive a summary of risk evaluation results to the Board of Directors appropriate legal guidance regarding matters such as important each year. agreements and lawsuits.

We strive to actively manage risks related to our business in Although we strive to manage risks and mitigate their impact general through measures including preparing an emergency/cri- by taking these countermeasures, they by no means cover all pos- sis response plan and conducting regular emergency response sible risks. As a result, the impact from individual events cannot drills at ordinary times, to enhance our ability to respond to emer- be completely eliminated. gency situations caused by events such as major accidents and disasters. In addition, we have formulated a Business Continuity Plan (BCP) and review it as appropriate to prevent important operations from being interrupted. Furthermore, the Information Security Committee meets both on a regular basis and as needed, taking action on information security on an organizational and systematic basis, as well as conducting education and training including prevention of information leakage.

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II. OTHER BUSINESS RISKS

1. PRODUCTION SHARING CONTRACTS (1) Details of production sharing contracts contractor it invests technology and funds in the exploration and The Group has entered into production sharing contracts with development of the property, recovers the invested costs from countries including Indonesia and Caspian Sea area, and there- the production produced, and receives a share of the remaining fore holds numerous participating interests in those regions. production after recovery of invested costs as compensation. Production sharing contracts are agreements by which one or Costs invested on the basis of production sharing contracts several oil companies serve as contractors that undertake at their are recorded on the balance sheet as assets for which future re- own expense exploration and development work on behalf of the covery is anticipated under the item “Recoverable accounts un-

governments of oil-producing countries or national oil companies der production sharing.” After the start of production, recovered Growth Strategies for Value Creation and receive production from the projects as cost recovery and costs on the basis of those agreements are deducted from this compensation. That is to say, when exploration and development balance sheet item. work results in the production of oil or natural gas, the contractors As production received under production sharing contracts is recover the exploration and development costs they incurred by divided into the cost recovery portion and the compensation por- means of a share in the production. The remaining production tion, the method of calculating cost of sales is also distinctive. (crude oil and gas) is shared among the oil-producing country or That is to say, the full amount of production received is temporar- national oil company and the contractors according to fixed allo- ily charged to cost of sales as the cost of received production, cation ratios. (The contactors’ share of production after cost re- and subsequently the amount of the compensation portion is cal- covery is called “profit oil and gas.”) On the other hand, in cases culated and this amount is booked as an adjustment item to cost when exploration fails and expected production is not realized, of sales (“Free of charge production allocated”). Consequently, the contractors are not to recover their invested funds. only the cost recovery portion of production after deduction of the compensation portion is booked as cost of sales. (2) Accounting treatment of production sharing contracts When a company in the Group owns participating interests under production sharing contracts, as mentioned above, in the role of The Basis of our Value Creation

2. RELATIONSHIP WITH THE JAPANESE GOVERNMENT (1) The Company’s relationship with National Oil Corporation Asset Evaluation and Liquidation Delib- the Japanese government eration Subcommittee of the Advisory Committee on Energy and Although the government of Japan (the Minister of Economy, Natural Resources, an advisory body of the Ministry of Economy, Trade and Industry) holds 18.96 of the Company’s common shares Trade and Industry. The Report describes the importance of ap- issued (excluding treasury shares) and a Class A Stock as of March propriate timing in selling the shares on the market, taking into 26, 2021, the Company autonomously exercises business judg- consideration enterprise value growth. In addition, METI may, in ment as a private corporation. There is no relationship of control, accordance with the Supplementary Provision Article 13 (1) 2 of such as through the dispatch of officers or other means between the “Special Measures Act for Reconstruction Finance Keeping the Company and the Japanese government. Moreover, we be- After the Great East Japan Earthquake” (“the Reconstruction Fi- lieve that no such relationship will develop in the future. Further- nance Keeping Act“ (provisional translation, the same shall apply more, there is no concurrent posting or secondment to the hereinafter)) enacted December 2, 2011, sell off the Company’s Company of officers or employees from the Japanese shares in Japan or overseas after examining the possibility of dis- government. posal of the said shares based on a review of the holdings from Performance and Financial Overview the perspective of energy policy. This could have an impact on (2) Ownership and sale of the Company’s shares the market price of the Company’s shares. by the Japanese government (the Minister of METI also holds one share of the Company’s Class A Stock. As Economy, Trade and Industry) the holder of a Class A Stock, METI possesses veto rights over The Ministry of Economy, Trade and Industry (METI) holds 18.96% certain resolutions of the Company’s general shareholders’ meet- of the Company’s common shares issued (excluding treasury ings and meetings of the Board of Directors. For details on the shares). METI succeeded to the shares that had been held by Ja- Class A Stock, please refer to “4. CLASS A STOCK” on P. 105. pan National Oil Corporation (JNOC) following the dissolution of JNOC on April 1, 2005. With regard to the liquidation and disposition of the oil and gas upstream assets owned by JNOC, the Policy Regarding the Disposal of Oil and Gas Development-Relat- ed Assets Held by Japan National Oil Corporation (hereinafter, the “Report”) was announced on March 18, 2003 by the Japan

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015_0219287912106.indd 103 2021/06/29 23:29:49 3. TREATMENT OF SHARES OF THE GROUP’S PROJECT COMPANY OWNED BY JAPANESE GOVERNMENT AND JOGMEC (1) Treatment of shares of the Group’s project (2) Treatment of the shares of Sakhalin Oil and company previously owned by Japan National Gas Development (SODECO) owned by Oil Corporation (JNOC) the Japanese government In the aforementioned Report, INPEX CORPORATION (prior to The Japanese government (the Minister of Economy, Trade and the integration with Teikoku Oil; reorganized on October 1, 2008) Industry) owns 50% of the shares of SODECO. SODECO was es- was identified as a company that should comprise part of a core tablished in 1995 to engage in an oil and natural gas exploration company, and is expected to play a role in efficient realization of and development project located on the northeast continental a stable supply of energy for Japan through the involvement by shelf off Sakhalin Island. SODECO owns a 30.0% interest in the a national flagship company. In response to the Report, the Com- Sakhalin-1 Project, of which ExxonMobil of the United States is pany (also, the Group since our acquirement of Teikoku Oil on the operator. In October 2005, Phase 1 of this project started with October 1, 2008) has sought to promote efficient realization of the goal of advanced production of oil and natural gas. Further- a stable supply of energy for Japan while taking advantage of more, there is a plan for additional development operations synergy with the efforts of active resource diplomacy on the part (Phase 2) for the purpose of the full-scale production of natural of the Japanese government, and has aimed to maximize share- gas. The Company holds 6.08% of SODECO shares issued and holder value by engaging in highly transparent and efficient busi- outstanding. ness operations. In the previously mentioned Report, SODECO, along with IN- As a result, with regard to the integration by means of transfer PEX CORPORATION and JODCO, has been identified as a com- of shares held by JNOC proposed in the Report, INPEX CORPO- pany that should comprise part of a core company in Japan’s oil RATION and JNOC concluded the Basic Agreement Concerning and natural gas upstream industry in the future. the Integration of Assets Held by JNOC into INPEX CORPORA- In accordance with the Report, it is assumed that private-sec- TION of February 5, 2004 (hereinafter the “Basic Agreement”) tor shareholders, including INPEX CORPORATION, will acquire and a memorandum of understanding related to Basic Agree- shares of SODECO issued and outstanding to which the Minister ment (hereinafter “MOU”). On March 29, 2004, INPEX CORPORA- of Economy, Trade and Industry succeeded and that were previ- TION and JNOC entered into related contracts including the ously held by JNOC (50.0%). The Company plans to hold a maxi- Basic Contract Concerning the Integration of Assets Held by mum of 33% of the SODECO shares to become its largest JNOC into INPEX CORPORATION (hereinafter the “Basic Con- shareholder. In the event that the consent of SODECO’s joint-ven- tract”), achieving the agreement on the details including the ture partners, the relevant Russian government entity, or other treatment of the project companies subject to the integration and parties is necessary for the acquisition of the shares, obtaining the shareholding ratios. consent is a prerequisite for acquisition. In addition, it will be nec- The treatment of Sakhalin Oil and Gas Development Co., Ltd. essary to reach agreement on the shareholder composition for (hereinafter “SODECO”), INPEX Masela, Ltd., INPEX North Cas- SODECO, the share transfer price, and other matters. pian Sea, Ltd., INPEX North Makassar, Ltd. (liquidation proceed- In the event that the additional acquisition of the SODECO ings completed on December 19, 2008), and INPEX Offshore shares is realized, the Group will hold a substantial ownership in- North Campos, Ltd. (following the acquisition of all shares in this terest in oil and natural gas assets in Russia, as well as in Asia and company by private-sector shareholders, including INPEX COR- Oceania, the Middle East, Caspian Sea area, and other regions, PORATION, this company was sold to a third-party in October and we expect the acquisition to contribute to the achievement 2019), was agreed between INPEX CORPORATION and JNOC in of a more balanced overseas asset portfolio for the Group. the MOU of February 5, 2004. Regarding the treatment of shares However, at this time it is undecided whether agreement con- of SODECO, refer to the section “(2) Treatment of the shares of cerning acquisition of the shares with the Minister of Economy, Sakhalin Oil and Gas Development (SODECO) owned by the Jap- Trade and Industry will be reached as anticipated and will be real- anese government” on P. 104. With regard to the transfer to ized. Also, even in the event that the acquisition is realized, the INPEX CORPORATION of the shares in the above project compa- conditions and time of acquisition are undecided and, depending nies other than SODECO, it was decided that the shares are to be on the result of review in accordance with the Reconstruction Fi- transferred for cash compensation as soon as prerequisites such nance Keeping Act, the acquisition by the Company could be as the consent of the oil-producing country and joint venture unavailable. partners and the possibility of appropriate asset evaluations are in place. However, the transfer of shares held by JNOC in the above companies has not been decided and the shares in the above project companies were succeeded to by the Japan Oil Gas and Metals National Corporation (hereinafter “JOGMEC”) on the dissolution of JNOC on April 1, 2005, except shares related to INPEX North Makassar, Ltd., to which the Minister of Econ- omy, Trade and Industry succeeded. JOGMEC states in its “medium-term objective” and “medium-term plan” that the shares succeeded to from JNOC will be disposed of at an appropriate time and in an appropriate manner. However, the timing and manner of disposal for those shares in the above companies held by JOGMEC that have not been acquired by INPEX COR- PORATION have not been decided, and it is possible that the Company will be unable to acquire these shares.

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4. CLASS A STOCK (1) Overview of the classified share 4) Criteria for the exercise of veto rights provided in the 1) Reason for the introduction criteria for the exercise of the Class A Stock holder’s The Company was established as the holding company through voting rights a stock transfer between INPEX CORPORATION and Teikoku Oil Criteria concerning the exercise of the veto rights have been es- Co., Ltd. on April 3, 2006. Along with this, a classified share origi- tablished in a Ministry of Economy, Trade and Industry Notice nally issued by INPEX CORPORATION (prior to the merger) was (No. 37, 2019) (hereinafter the “Notice”). The criteria stipulate the transferred and at the same time the Company issued a classified exercise of veto rights only in the following specific cases.

share with the same effect (hereinafter the “Class A Stock”) to the • When resolutions pertaining to appointment or removal of Di- Growth Strategies for Value Creation Minister of Economy, Trade and Industry. The classified share rectors and integration are not voted down and it is judged originally issued by INPEX CORPORATION was the minimally re- that the probability is high that the Company will engage in quired and a highly transparent measure to eliminate the possibil- management inconsistent with the role that a core company ity of management control by foreign capital while not should perform for efficient realization of a stable supply of en- unreasonably impeding the efficiency and flexibility of manage- ergy to Japan. ment based on the concept in the Report discussed in the above • With regard to decisions related to the disposal of all or part of section 3. “TREATMENT OF SHARES OF THE GROUP’S PROJ- significant assets, when resolutions pertaining to disposition of ECT COMPANY OWNED BY JAPANESE GOVERNMENT AND material assets are not voted down and the objects of disposi- JOGMEC.” INPEX CORPORATION is identified as a company tion are oil and natural gas exploration or production rights or that should comprise part of a core company for Japan’s oil and rights similar thereto or shares or ownership interest in the gas upstream industry and is expected to play a role in efficient Company’s subsidiary whose principal assets are said rights realization of a stable supply of energy for Japan as a national and it is judged that the probability is high that the Company flagship company. On the basis of the concept of the Report, fol- will engage in management inconsistent with the role that lowing a speculative acquisition or an attempt at management a core company should perform for efficient realization of a sta- controlled by foreign capital, Class A Stock is designed and is- ble supply of energy to Japan. sued to be highly transparent while not unreasonably impeding • When resolutions pertaining to amendments to the Company’s

the efficiency and flexibility of management and to keep the ef- Articles of Incorporation relating to changes in the Company’s The Basis of our Value Creation fects of any such speculative acquisition to the necessary mini- business objectives, reduction in the amount of capital, or dis- mum. At the same time, Class A Stock maintains the Company’s solution are not voted down and it is judged that the probabili- role in the efficient implementation of a stable supply of energy ty is high that the Company will engage in management for Japan as a core business, so that management is not conduct- inconsistent with the role that a core company should perform ed in a way contradictory to that role and no negative impact is for efficient ealizationr of a stable supply of energy to Japan. felt. • When resolutions pertaining to amendments to the Articles of 2) Shareholders’ meeting resolutions, dividends, Incorporation granting voting rights to any shares other than distribution of residual assets, and redemption the common shares of the Company are not voted down and Unless otherwise provided by laws or ordinances, the Class could have an effect on the exercise of the voting rights of the A Stock does not have any voting rights at the Company’s general Class A Stock. shareholders’ meetings. With regard to cash dividends paid and It is provided that the above criteria shall not be limited in the the distribution of residual assets, the Company concluded event that the Notice is changed in the light of energy policy. a stock split at a ratio of 1:400 of common stock with October 1, 2013, as the effective date. For Class A Stock (unlisted) no stock (2) Risk in connection with the Class A Stock split was conducted. The Articles of Incorporation specify that Following a speculative acquisition or an attempt at management dividends of Class A Stock are equivalent to dividends of a com- controlled by foreign capital, Class A Stock is designed and is- Performance and Financial Overview mon stock prior to the stock split. The Class A Stock will be re- sued to be highly transparent while not unreasonably impeding deemed by resolution of the Board of Directors of the Company the efficiency and flexibility of management and to keep the ef- if the holder of the Class A Stock requests redemption or if the fects of any such speculative acquisition to the necessary mini- Class A Stock is transferred to a party other than the government mum. At the same time, Class A Stock maintains the Company’s of Japan or an independent administrative body that is fully fund- role in the efficient implementation of a stable supply of energy ed by the government of Japan. for Japan as a core business, so that management is not conduct- 3) Veto rights in the Articles of Incorporation ed in a way contradictory to that role and no negative impact is The Articles of Incorporation of the Company provide that an ap- felt. Nevertheless, the anticipated risks in connection with the proval resolution of the meeting of the holder of the Class Class A Stock include the following. A Stock is necessary in addition to resolutions of the Company’s 1) Possibility of conflict of interest between national general shareholders’ meetings and resolutions of meetings of policy and the Company and its common shareholders the Board of Directors for the decisions on certain important mat- It is conceivable that the Minister of Economy, Trade and Industry ters such as the appointment or removal of Directors, disposition could exercise the veto rights in accordance with the above crite- of material assets, changes to the Articles of Incorporation, busi- ria provided in the Notice. As the said criteria have been provided ness integration, capital reduction or company dissolution in con- from the standpoint of efficient ealizationr of a stable supply of nection with the business of the Company. Accordingly, the energy to Japan, it is possible that the exercise of the veto rights Minister of Economy, Trade and Industry, as the holder of the by the Minister of Economy, Trade and Industry could conflict with Class A Stock, has veto rights over these important matters. With the interest of other shareholders who hold the Company’s com- regard to the cases in which the Class A Stock veto rights are ex- mon shares. Also, it is possible that the said criteria could be ercisable, please refer to “4) Criteria for the exercise of veto rights changed in the light of energy policy. provided in the criteria for the exercise of the Class A Stock holder’s voting rights”, at right.

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015_0219287912106.indd 105 2021/06/29 23:29:49 2) Impact of the exercise of veto rights on the price of needs a resolution of the meeting of the holder of the Class shares of common stock A Stock concerning the above matters. For this reason, the Com- As mentioned above, as the holder of the Class A Stock has the pany’s degree of freedom in management in those matters could veto rights over certain important matters in connection with the be restricted by the judgment of the Minister of Economy, Trade business of the Company, the actual exercise of the veto rights and Industry. Also, attendant on the need for a resolution of the over a certain matter could have an impact on the price of the meeting of the holder of the Class A Stock concerning the above Company’s shares of common stock. matters, a certain period of time is required for procedures such 3) Impact on the Company’s degree of freedom in as the convening and holding of meetings and resolutions and for business and business judgment the processing of formal objections, if necessary. As the Minister of Economy, Trade and Industry holds the Class A Stock with the previously mentioned veto rights, the Company

5. CONCURRENTLY SERVING OUTSIDE DIRECTORS The Board of Directors of the Company is currently composed of The Company therefore recognizes that it must pay particular at- 14 members, six of whom are outside directors. tention to corporate governance to avoid conflicts of interest in Four of the six outside directors have many years’ experience connection with competition and other matters. and knowledge of the Company’s business and are able to offer To this end, all Company directors, including the three outside objective, professional advice regarding operations. For this rea- directors described above, are required to sign a written under- son, they were asked to join the Board of Directors to contribute taking to carry out their duties as officers of the Company appro- to the development of the Company’s business. Three of the di- priately and with the highest regard for the importance of such rectors concurrently serve as director or advisors of Japan Petro- matters as their obligations in connection with noncompetitive leum Exploration Co., Ltd., ENEOS Holdings, Inc., and Mitsubishi practices under the Japanese Companies Act, the proper manner Corporation (hereinafter “shareholder corporations”), respectively. for dealing with conflict of interest, and confidentiality. At the same time, however, the shareholder corporations are involved in businesses that overlap with those of the Company.

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1. Oil and Gas Reserves

Proved reserves The following tables list the proved reserves of crude oil, conden- presented in accordance with the Accounting Standards Codifica- sate, LPG and natural gas of INPEX CORPORATION, its consoli- tion Topic 932 “Extractive Activities —Oil and Gas” (“Topic 932”). dated subsidiaries and equity-method affiliates (the “Group”) on The Group’s proved reserves as of December 31, 2020, were 2,700 main projects. Disclosure contents for proved reserves are deter- million barrels for crude oil, condensate and LPG, and 5,586 bil- mined in accordance with the rules and regulations of the U.S. Fi- lion cubic feet for natural gas, for a total of 3,730 million boe. nancial Accounting Standards Board (the “FASB”), and are

Eurasia Middle East & Japan Asia & Oceania Americas Total (Europe & NIS) Africa Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas Crude oil Gas (MMbbl) (Bcf) (MMbbl) (Bcf) (MMbbl) (Bcf) (MMbbl) (Bcf) (MMbbl) (Bcf) (MMbbl) (Bcf) Growth Strategies for Value Creation Proved developed and undeveloped reserves INPEX CORPORATION and Consolidated Subsidiaries As of March 31, 2019 18 727 190 4,968 289 148 2,343 — 4 6 2,845 5,849 Extensions and ———————————— discoveries Acquisitions and sales — — — — — — — — 44 25 44 25 Revisions of previous 1 33 (3) 32 23 56 136 — 0 14 157 135 estimates Interim production (1) (33) (13) (264) (11) (7) (66) — (2) (17) (94) (320) As of December 31, 2019 18 728 174 4,736 301 198 2,413 — 46 27 2,952 5,688 Equity-method affiliates As of March 31, 2019 — — 2 330 12 — 5 — — — 20 330 Extensions and ———————————— discoveries Acquisitions and sales — — — — (0) — — — — — (0) — Revisions of previous — — (0) 11 4 — 1 — 0 0 5 11 estimates Interim production — — (0) (17) (2) — (1) — (0) (0) (3) (17) As of December 31, 2019 — — 2 324 15 — 5 — — — 22 324 Proved developed and undeveloped reserves As of December 31, 2019 18 728 176 5,060 315 198 2,419 — 46 27 2,974 6,012 The Basis of our Value Creation INPEX CORPORATION and Consolidated Subsidiaries As of December 31, 2019 18 728 174 4,736 301 198 2,413 — 46 27 2,952 5,688 Extensions and ———————————— discoveries Acquisitions and sales ———————————— Revisions of previous (1) (41) (6) (6) 30 26 (170) — (4) 2 (151) (19) estimates Interim production (1) (40) (16) (371) (17) (9) (81) — (3) (19) (118) (440) As of December 31, 2020 16 646 152 4,359 314 215 2,162 — 39 10 2,684 5,229 Equity-method affiliates As of December 31, 2019 — — 2 324 15 — 5 — — — 22 324 Extensions and ———————————— discoveries Acquisitions and sales ———————————— Revisions of previous — — (0) 56 (2) — 0 — — — (2) 56 estimates Interim production — — (0) (23) (2) — (2) — — — (4) (23) As of December 31, 2020 — — 2 357 11 — 4 — — — 16 357 Proved developed and undeveloped reserves Performance and Financial Overview As of December 31, 2020 16 646 154 4,715 324 215 2,166 — 39 10 2,700 5,586

Proved developed reserves INPEX CORPORATION and Consolidated Subsidiaries As of December 31, 2020 16 646 129 3,037 260 215 1,513 — 3 2 1,920 3,900 Equity-method affiliates As of December 31, 2020 —— 1 169 9 — 1 — — — 11 169 Proved undeveloped reserves INPEX CORPORATION and Consolidated Subsidiaries As of December 31, 2020 — — 24 1,321 54 — 649 — 36 8 763 1,330 Equity-method affiliates As of December 31, 2020 — — 0 188 2 — 3 — — — 5 188 Notes: 1. Based on SEC disclosure standards, the Group discloses proved reserves in each country containing 15% or more of its proved reserves. As of December 31, 2020, the Group held proved reserves in Australia of approximately 145 million barrels for crude oil and approximately 4,170 billion cubic feet for natural gas, for a total of approximately 919 million boe. 2. Proved reserves (as of December 31, 2020) of the following blocks and fields include the portion attributable to non-controlling interests. Eurasia (Europe & NIS): ACG (49%), Kashagan (49%) Middle East & Africa: Abu Dhabi Onshore Concession (49%) 3. MMbbl: Million barrels 4. Bcf: Billion cubic feet 5. Crude oil includes condensate and LPG 6. Oil and gas reserves are rounded to the nearest whole number.

Standardized measure of discounted future net cash flows and their changes relating to proved oil and gas reserves for the year ended December 31, 2020 Disclosure contents for the standardized measure of discounted accordance with the rules and regulations of the FASB, and are future net cash flows and their changes relating to proved re- presented in accordance with Topic 932. serves for the year ended December 31, 2020 are determined in

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015_0219287912106.indd 107 2021/06/29 23:29:49 In calculating the standardized measure of discounted future The translation of U.S. dollar amounts into yen amounts is cash inflows, the arithmetic average of oil and gas prices at the computed by applying the year-end exchange rates (TTM) of first day of each month during the current fiscal year is applied to ¥109.55 and ¥103.52 to the U.S. dollar as of December 31, 2019 the estimated annual future production from proved reserves. Fu- and December 31, 2020, respectively. ture development and production costs are estimated based Since these figures are calculated in accordance with the rules upon the assumptions of constant oil and gas prices and the con- set forth by the FASB, which have the following aspects, they do tinuation of existing economic, operating and regulatory condi- not represent the fair market value nor the Group’s estimation for tions. Future income tax expenses are calculated by applying the the present value of the cash flows of reserves of crude oil, con- year-end statutory tax rates to estimated future pretax cash flows densate, LPG and natural gas. less the tax basis of the properties involved based upon laws and • No economic value is attributed to potential reserves. regulations already legislated at year-end. The discount is com- • A prescribed discount rate of 10% is applied. puted by applying a prescribed discount rate of 10% to the esti- • Oil and gas prices are subject to constant fluctuations despite mated future net cash flows. the assumptions of constant oil and gas prices of Topic 932.

Millions of yen Asia & Eurasia Middle East & Total Japan Americas December 31, 2019 Oceania (Europe & NIS) Africa INPEX CORPORATION and Consolidated Subsidiaries Future cash inflows ¥ 24,132,722 ¥1,132,190 ¥ 3,354,557 ¥1,912,255 ¥ 17,447,487 ¥ 286,233 Future production and development costs (8,733,617) (334,782) (1,341,047) (706,959) (6,162,938) (187,891) Future income tax expenses (11,042,289) (253,444) (248,020) (234,518) (10,295,017) (11,290) Future net cash flows 4,356,817 543,964 1,765,491 970,779 989,532 87,052 10% annual discount for estimated timing of cash flows (2,166,114) (298,301) (686,627) (509,475) (625,989) (45,723) Standardized measure of discounted future net cash flows 2,190,703 245,664 1,078,864 461,304 363,543 41,329

Equity-method affiliates Future cash inflows 455,408 — 314,808 104,199 36,401 — Future production and development costs (156,912) — (111,093) (17,722) (28,096) — Future income tax expenses (118,401) — (76,387) (38,745) (3,269) — Future net cash flows 180,095 — 127,328 47,732 5,035 — 10% annual discount for estimated timing of cash flows (75,027) — (62,093) (12,184) (749) — Share of equity-method investees’ standardized measure 105,069 — 65,235 35,548 4,286 — of discounted future net cash flows

Total consolidated and equity-method affiliates in ¥ 2,295,772 ¥ 245,664 ¥ 1,144,099 ¥ 496,852 ¥ 367,829 ¥ 41,329 standardized measure of discounted future net cash flows Note: Reserves of the following blocks and fields include the portion attributable to non-controlling interests. Eurasia (Europe & NIS): ACG (49%), Kashagan (49%) Middle East & Africa: Abu Dhabi Onshore Concession (49%) Amounts are basically rounded to the nearest million.

Millions of yen Asia & Eurasia Middle East & Total Japan Americas December 31, 2020 Oceania (Europe & NIS) Africa INPEX CORPORATION and Consolidated Subsidiaries Future cash inflows ¥13,620,229 ¥ 789,800 ¥ 2,157,411 ¥1,190,377 ¥ 9,328,481 ¥ 154,159 Future production and development costs (6,358,718) (254,531) (1,129,013) (622,464) (4,207,125) (145,587) Future income tax expenses (4,941,757) (174,850) (74,682) (108,183) (4,583,545) (498) Future net cash flows 2,319,754 360,420 953,717 459,730 537,812 8,075 10% annual discount for estimated timing of cash flows (1,128,715) (190,828) (359,024) (236,386) (332,935) (9,542) Standardized measure of discounted future net cash flows 1,191,039 169,591 594,693 223,344 204,877 (1,466)

Equity-method affiliates Future cash inflows 300,851 — 234,251 48,972 17,627 — Future production and development costs (127,026) — (92,956) (16,355) (17,715) — Future income tax expenses (65,795) — (46,641) (18,375) (778) — Future net cash flows 108,030 — 94,654 14,242 (867) — 10% annual discount for estimated timing of cash flows (44,506) — (41,547) (3,165) 206 — Share of equity-method investees’ standardized measure of 63,523 — 53,107 11,077 (661) — discounted future net cash flows

Total consolidated and equity-method affiliates in ¥ 1,254,562 ¥ 169,591 ¥ 647,800 ¥ 234,421 ¥ 204,216 ¥ (1,466) standardized measure of discounted future net cash flows Note: Reserves of the following blocks and fields include the portion attributable to non-controlling interests. Eurasia (Europe & NIS): ACG (49%), Kashagan (49%) Middle East & Africa: Abu Dhabi Onshore Concession (49%) Amounts are basically rounded to the nearest million.

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Millions of yen Asia & Eurasia Middle East & Equity-method Total Japan Americas Oceania (Europe & NIS) Africa affiliates INPEX CORPORATION and Consolidated Subsidiaries Standardized measure at beginning of ¥ 2,295,772 ¥ 245,664 ¥1,078,864 ¥ 461,304 ¥ 363,543 ¥ 41,329 ¥105,069 the period As of January 1, 2020 Changes resulting from: Sales and transfers of oil and gas (824,730) (52,518) (244,641) (79,890) (398,024) (20,471) (29,186) produced, net of production costs

Net changes in oil and gas prices and Growth Strategies for Value Creation (2,357,943) (63,926) (416,848) (282,659) (1,485,853) (42,227) (66,431) production costs Development costs incurred 170,496 555 75,118 23,598 43,279 19,045 8,901 Changes in estimated future (30,077) (1,029) (33,563) (9,719) 4,883 15,739 (6,389) development costs Revisions of previous quantity estimates (282,884) 183 (23,789) 48,572 (305,127) (20,713) 17,991 Accretion of discount 194,215 19,618 92,296 38,499 31,216 3,771 8,815 Net change in income taxes 2,216,081 34,568 126,641 49,031 1,970,969 4,335 30,537 Extensions, discoveries and improved — — — — — — — recoveries Other (126,367) (13,522) (59,384) (25,392) (20,011) (2,275) (5,783) Standardized measure at end of ¥ 1,254,562 ¥ 169,591 ¥ 594,693 ¥ 223,344 ¥ 204,877 ¥ (1,466) ¥ 63,523 the period As of December 31, 2020 Note: Reserves of the following blocks and fields include the portion attributable to non-controlling interests. Eurasia (Europe & NIS): ACG (49%), Kashagan (49%) Middle East & Africa: Abu Dhabi Onshore Concession (49%) Amounts are basically rounded to the nearest million.

2. Oil and Gas Production The Basis of our Value Creation

The following tables list average daily production for crude oil, The Group’s production for the year ended December 31, natural gas, and the total of crude oil and natural gas by region. 2020, was 331.1 thousand barrels per day for crude oil, conden- The proportional interests in production by the equity-method af- sate and LPG, and 1,264.6 million cubic feet per day for natural filiates are not broken down by geographical regions. gas, for a total of 573.4 thousand boed.

2016/3 2017/3 2018/3 2019/3 2019/12 2020/12 Crude oil, condensate and LPG (Mbbld): Japan 3.2 3.5 3.7 3.5 3.1 3.0 Asia & Oceania 47.8 35.8 21.2 18.7 47.5 42.5 Eurasia (Europe & NIS) 31.6 29.6 37.5 40.7 41.0 46.4 Middle East & Africa 161.1 176.3 176.2 225.6 240.9 221.5 Americas 5.5 5.6 3.9 1.8 8.2 7.6 Subtotal 249.2 250.7 242.6 290.3 340.7 321.1 Proportional interests in production by equity-method 90.0 97.6 86.5 13.0 11.7 10.0 affiliates Total 339.2 348.3 329.1 303.3 352.4 331.1

Annual production (MMbbl) 124.2 127.1 120.1 110.7 96.9 121.2 Performance and Financial Overview

Natural gas (MMcf/d): Japan 119.7 132.0 145.6 131.6 118.6 110.5 Asia & Oceania 666.8 614.8 326.9 346.5 958.6 1,012.8 Eurasia (Europe & NIS) — 5.3 21.4 27.4 24.5 24.8 Middle East & Africa — — — — — 0.0 Americas 87.3 116.5 107.7 89.8 63.5 52.7 Subtotal 873.8 868.6 601.6 595.3 1,165.2 1,200.9 Proportional interests in production by equity-method 59.1 54.1 48.1 53.8 61.2 63.7 affiliates Total 932.9 922.7 649.7 649.0 1,226.4 1,264.6 Annual production (Billions of cubic feet) 341.4 336.8 237.1 236.9 337.3 462.8

Crude oil and natural gas (Mboed): Japan 25.7 28.3 31.1 28.2 25.4 23.7 Asia & Oceania 174.0 152.5 82.7 84.4 231.9 238.4 Eurasia (Europe & NIS) 31.6 30.6 41.4 45.6 45.3 50.9 Middle East & Africa 161.1 176.3 176.2 225.6 240.9 221.5 Americas 21.0 26.5 23.5 18.1 20.0 17.4 Subtotal 413.4 414.1 354.9 401.8 563.5 552.0 Proportional interests in production by equity-method 100.5 107.2 95.0 22.5 22.6 21.4 affiliates Total 513.8 521.3 449.9 424.3 586.2 573.4 Annual production (MMboe) 188.1 190.3 164.2 154.9 161.2 209.9

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015_0219287912106.indd 109 2021/06/29 23:29:49 Corporate Information (As of December 31, 2020)

Information Disclosure and Activities for Shareholders and Investors

INPEX undertakes the early delivery of convocation investors and meetings in a variety of venues virtually or notices for its general meeting of shareholders to in-person. INPEX holds biannual meetings for analysts ensure that shareholders have sufficient time to and institutional investors, either virtually or inperson, consider agenda items at each Ordinary General covering topics ranging from financial results to financial Meeting of Shareholders. The Convocation Notice for forecasts. Video archives are available on the IR section INPEX’s 15th Ordinary General Meeting of Shareholders of the Company’s Web site both in Japanese and in held in March 25, 2021 was posted on the Company’s English. INPEX undertakes overseas IR road shows in Web site more than three weeks prior to the meeting the regions including Europe, North America and Asia, on February 24, 2021. The Convocation Notice itself was while participating in conferences and engaging in one- dispatched on March 3, 2021. on-one meetings virtually or inperson as necessary. To facilitate the exercise of voting rights, INPEX The Company’s Web site (IR section: www.inpex. implemented the exercise of voting rights via the co.jp/english/ir/) features a host of IR tools including Internet. The Company also adopted a platform for the financial reports, financial results presentations and electronic use of voting rights while posting copies of annual reports. Furthermore, efforts are made to the convocation notice and other related documents, disclose pertinent information such as the latest news both in Japanese and English, on its Web site and releases, the Company’s performance and financial TDnet (Timely Disclosure network). position, as well as trends in crude oil prices, foreign Turning to the Company’s IR activities, INPEX currency exchange rates, the Company’s share price participates in events such as IR fairs for individual and stock information.

Credit Rating (As of June 23, 2021)

Credit Rating Agency Long-Term Credit Ratings Short-Term Credit Ratings Moody’s A2 (stable) — Standard & Poor’s A- (stable) A-2 Rating & Investment Information (R&I) AA- (stable) a-1+

Status of Inclusion in Major Indexes (As of May 2021)

Nikkei Stock Average (Nikkei 225) MSCI ESG Leaders Indexes/ Nikkei Stock Index 300 / Nikkei 500 Stock Average MSCI Japan ESG Select Leaders Indexes/ TOPIX MSCI Japan Empowering Women Index TOPIX Mid 400/TOPIX 500/TOPIX 1000 S&P/JPX Carbon Efficient Index JPX-Nikkei Index 400 STOXX Global ESG Leaders Index MSCI Japan Index ECPI World ESG Equity/ MSCI World Energy Index ECPI Global Carbon Liquid/ ECPI Global Developed ESG Best in Class FTSE4Good Developed Index/ FTSE4Good Japan Index SOMPO Sustainability Index FTSE Blossom Japan Index

Website Information About INPEX Our Business https://www.inpex.co.jp/ https://www.inpex.co.jp/english/company/ https://www.inpex.co.jp/english/ business/ english/ Business Development Strategy - Towards Medium-term Business a Net Zero Carbon Society by 2050 Plan 2018-2022 https://www.inpex.co.jp/english/company/ https://www.inpex.co.jp/ business_development_strategy.html english/company/midterm.html

110 INPEX CORPORATION Annual Report 2020

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005_0219287912106.indd 4-6 2021/06/25 16:28:58 INPEX CORPORATION Annual Report 2020 For the period ended December 31, Annual Report 2020 For the period ended December 31, 2020

Akasaka Biz Tower 5-3-1 Akasaka, Minato-ku, Tokyo 107-6332, Japan Phone: +81-3-5572-0200 https://www.inpex.co.jp/english

This Report was printed using environmentally conscious methods and vegetable oil-based ink.

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